Special Situations: Carrefour Bingo 1: Eur 24.3 - target remains North of

Special Situations: Carrefour Bingo 1:  Eur 24.3 - target remains North of 40 - BUY re-iterated

Special Situations: Carrefour (CA FP)

trade action flash – bingo 1: monetization of Brazil – BUY again

CA FP: EUR 24.3; target: Eur 40+

December 19, 2014

Carrefour announced it was selling 10% of its Brazilian business to Abilio Diniz for BRL20.4bn.  The figure is within our expected range particularly given the depreciation of the Reais vs. Euro (10%).  As we had been arguing forcefully since Mr. Plassat was appointed CEO, the Carrefour Brazil business, one of the group’s main assets, is being monetized with a clear price tag put on it.  That Mr. Diniz bought the stake is no surprise either.  This is what we had written in our April 16, 2012 report:

“Carrefour has the ability to price some of its most important assets via partial IPOs, spin-offs (it did it already with its Spanish discount chain, returning more than Eur 2bn to shareholders). In particular, it could list its Brazilian business, or issue tracking shares for it, or even possibly sell it to Abilio Diniz when he is cashed out of CBD by Casino (or more likely a combination of IPO with Diniz taking a significant stake).”

Our scenario for Carrefour is unfolding exactly as we thought.  Mr. Diniz is taking a substantial stake that he can increase to 16%.  No doubt that the IPO will come in due course, in particular when the Brazilian market returns to a more bullish stance. The fact Mr. Diniz is becoming a significant shareholder is extremely good news for Carrefour. He is one of Brazil’s most emblematic business leader, having built the country’s largest and most successful supermarket chain (Pao de Acucar – PCAR4 BZ) and sold it to Casino.

With Brazil partially done, we continue to think that Carrefour’s next major restructuring news will be the monetization of its huge real estate portfolio.  Our target remains North of Eur 40.

As an aside, we recommend to close the short Casino stub we had recommended as a hedge in our May 9 2014 report.  The stub value (Casino ex Pao de Acucar and Mercyalis) went down by over 20% since then.