Casino - Facing up to its problems
All,
Please find our unchanged analysis here.
Widely reported in the French press and confirmed by the Company themselves, Casino has commenced a sales process to sell its GreenYellow division. Casino has mandated Rothschild, with Natixis, BNP Paribas Credit Agricole and HSBC reportedly sending out an information memorandum in late April. The rise in energy prices have given GreenYellow some momentum but haven’t we been here before in relation to speculation about asset sales?
Accepting the need to delever?
- Firstly, the timing is a little surprising. GreenYellow raised additional capital in late February. The €87m syndicated credit facility with a 1yr initial maturity was understandable, but in addition, GreenYellow raised a further €109m via a 5yr convertible bond with warrants attached, subscribed by Farallon Capital. We are surprised that after issuing a convertible bond and diluting the shareholding that Casino now is seeking to sell the business.
- Obviously, it depends on the level of dilution from the convertibles, but perhaps the launch of the sales process is finally an acknowledgement of the necessity to de-lever Casino.
What does it mean for Casino?
- There is limited information available on GreenYellow, and the sales process. Initial speculation is that GreenYellow could be worth €1.5bn, c.€1bn for Casino’s 72.3% stake.
- This €1bn would be used to reduce leverage at Casino, most likely by repaying the Term Loan Bs which will increase the headroom under the Senior Secured covenants.
- Interestingly, it will make the covenant calculation tighter for the Interest Coverage test. EBITDA at GreenYellow was c. €80m for FY21, but on a contribution to consolidated EBITDA was €63m, meaning Casino EBITDA less GY will be c.€17m less if and when GreenYellow is sold. The interest coverage test is backwards-looking so the repayment of debt will not impact LTM interest immediately.
- However, given the proceeds are likely to be used to repay Senior Secured Debt, we do not envisage any issues, even if waivers are required.
- Note, we are assuming Casino sells its stake in its entirety, and don’t retain a controlling stake.
To travel hopefully is a better thing than to arrive?
- Nothing has been confirmed and Casino has been in a similar position before, notably in Summer 2021, when the market firmly believed a sale of the Cnova stake was imminent.
- The muted price of €1.5bn is c.19x FY21 EBITDA or c. 15x FY22 projections. The renewables space is certainly in vogue currently, with several recent transactions including Engie’s acquisition of the Spanish renewable developer Eolia last year.
- The divestment of GreenYellow would enable Casino to meet its original €4.5bn of asset sales target by end of FY23, having already achieved €3.2bn.
Positioning:
- We maintain our 1% long position in Rallye Unsecured.
- We maintain our belief that the timeframe for Casino to deleverage has accelerated. We previously viewed the extension of the Sauvegarde at Rallye to be setting the pace. However, the underlying weakness in Casino France Retail means that Casino needs to deleverage in the short to medium term to comply with its covenants. The GreenYellow process confirms our view.
- However, we still suspect the Company will attempt to extract value from its GPA stake, which is currently undervalued based on conservative EBITDA or sales multiples for its Brazilian and non-Brazilian (Exito) businesses plus the 35% stake in Cnova.
- Ultimately, we had expected Naouri to try to time any asset sales with another debt reduction effort at Rallye. Perhaps this is an acknowledgement that Naouri is no longer in full control of the timings and the covenant issues are now dictating the process.
Happy to discuss.
Tomás