Casino - Risks to consensus and a higher share of liabilities than we thought – cut PT to €31
We remain concerned that Casino's earnings will fall short of expectations, with French EBIT guidance
(>€500m in 2016E) proving challenging and Brazilian earnings remaining pressured. Furthermore,
though Casino is making good progress with its deleveraging plan, a deeper look at financial liabilities
reveals more than we had previously thought. We cut our PT to €31 (from €35) as a result of our in
depth analysis of Casino's liabilities and, coupled with downside risk to earnings, reiterate our Sell rating.
* Share of net debt and seasonality higher than we thought
Casino's gross debt tends to sit in businesses that are 100% owned whereas the cash is more evenly
spread. As such, we proportionally consolidate the cash and gross liabilities of Casino's subsidiaries at
year end for valuation purposes. Moreover, we try to reflect seasonality by looking at how net debt
evolves through the year at the various subsidiaries. We estimate Casino's proportionally consolidated
share of average net debt in 2015 was €1.5bn higher than the reported year end figure. We had
previously assumed the difference was €600m, so cut our PT accordingly (€900m = c€8 per share).
* We calculate adjusted proportional net debt / EBITDA at 5.8x in 2016E
Overlaying losses on non-hedging derivatives (currently in other liabilities) of €450m together with debtlike
equity instruments (€1,775m) on top of our working capital / minorities adjustment brings total net
debt adjustments to €3,725m. When we contrast adjusted proportionally consolidated net debt / EBITDA
to reported net debt / EBITDA we calculate a ratio of 5.8x versus 1.7x in 2016E. This calculation excludes
provisions, consumer credit obligations and leases.
* Valuation: cutting PT to €31 due to higher liabilities
On the positive side, some of Casino's subsidiary valuations have moved a little higher and Vietnam is
expected to attract a robust multiple (it could be 25x EV/EBIT or not far from €900m). We value the listed
stakes at their market values and so the recent moves are reflected in our updated €31 PT. Our PT values
the non-Monoprix parts of France on 25% of sales, the lower end food retailers trade at, but c20x
EV/EBIT 2016E.