Less upside now, but our 2016 forecasts still 14% ahead of consensus
We update our model following the FY results on 9 Mar. The stock has performed since our upgrade on 16 Feb (+21% vs SXXP +6%), leaving us with less upside to our unchanged EUR 53 target price; but we still think consensus is in for big surprises this year as French margin rebuild, LatAm merger synergies, and faster-than-expected drop out of one-offs and business-development costs at Cnova all conspire to drive decent EBIT growth at Casino. We add 3% to our EBIT today (chiefly on FX mark-to-market as the BRL and COP are up 8-9% from the lows), but consensus appears little changed.
Property profits could actually be a BULL story
One area that could fuel Casino valuation beyond what we include in our SOP already is, paradoxically, the ‘French property profits’ that have been such a clarion call for bears in recent weeks. New disclosure with the FY results revealed that portfolio ‘rotation’ in France, and the real property development of adjacent commercial floorspace that Casino carries out in conjunction with Mercialys, has brought in a net >EUR200m of cash per year in 2014-15 without simply depleting the asset base to do so. We assume a contribution a little below this run rate on average over 2016-18, but view this as possibly conservative (in both size and duration). Meanwhile, the P&L contribution of these gains, which admittedly has been masking some poor performance of stores, makes no real difference to our view that the French ‘recovery’ (underway and guided to deliver c130bp profit improvement y-o-y in 2016) will extend ultimately to a 2-2.5% run-rate margin for the ex-Monoprix estate by 2018. We already knew ex-property profits of those stores today was ‘low’.
We call out Cnova as another key area where our valuation could ultimately prove conservative, at just 0.25x sales (Merchandise Value).
There could be newsflow from Casino in the coming days around disposal of Vietnam (positive), and possible negative conclusion of the S&P rating review (negative). Neither event is likely to affect our fair value, we think (we already value Vietnam at EUR 800m, and whilst a downgrade to sub-IG would slightly increase Casino’s annual cash interest, it may also increase the opportunities for Casino to accretively buy back bonds with its now-large cash pile, as it has already started to do).