Cnova/Casino/Rallye - Reality bites

All,

Please find our unchanged analysis on Casino/Rallye here.

The announcement this morning that Cnova was postponing/canceling their capital raising was a surprise to us, given just last week we spoke to the Casino about a potential secondary offering in Cnova by GPA and Casino. Back to the drawing board for Casino/Rallye structure and its aim for deleveraging.

Two consequences:

- There are two consequences of the postponement of capital raising by Cnova:

- Firstly, Cnova needed to raise capital to fund its ambitious expansion plans to continue to grow the business. Without the equity raising, Cnova will now have to rely on raising either financing at the Cnova level (remember, Cnova/cdiscount is included in the consolidated leverage covenants so any borrowing at Cnova level is effectively leverage at Casino) or rely on equity from Casino to fund its expansion. Either way, it is increasing leverage across the Casino structure - not the planned deleveraging.

- GPA were likely to place their 35% stake in Cnova as part of any primary capital raising. The GPA share price has significantly underperformed its peers and Assai since the split and many had hoped the realisation of its Cnova stake would allow a re-rating of the stock.

Fundamentals:

- Although the Cnova talk about market volatility and conditions, fundamentally, it has postponed its capital raising due to underwhelming Q3 performance. The Cnova hasn’t given any financials with their release this morning, but they have withdrawn their FY21 guidance for Sales and EBITDA.

- Cnova has had to invest in price (margin reduction) to keep market share, and despite positively worded press release, Cnova's full-year performance will be below guidance for GMV, Revenue and EBITDA.

Next Steps:

- The listing of GreenYellow is still muted for Q4. It should be noted that any listing will only be a primary listing to fund future CAPEX and not raise money for its shareholders (Casino 74%).

- Refinancing of Quatrim bond - the Quatrim bond is callable in November, and we had expected Casino to refinance this in the unsecured market, freeing up further capacity in the secured basket. Without any sign of deleveraging from Cnova, it is likely to be more difficult to refinance.

Positioning:

We maintain our 2% long position in Rallye unsecured. Arguably, with the Casino share price languishing sub €23 a share, the position is well out of the money and at risk of receiving another low-balled tender offer or similar. However, we are bullish on the re-opening trade within Casino and Rallye bonds are ultimately the most leveraged to the upside. We will give some thought to ordinary Casino equity vs Rallye bonds in the coming weeks.

Tomás Mannion

E: tmannion@sarria.co.uk

T: +44 20 3744 7009

M:+44 7786 705 806

www.sarria.co.uk