EUR 850.00 For Business Accounts Only

Morningstar | Casino Group Reports in Line 2018 Results With French FCF Guidance in the Spotlight; Shares Rich

Casino Group reported fiscal-year 2018 results with full-year group sales up 3.0% on a same-store basis and 4.7% organic growth, as previously disclosed in the fourth-quarter sales report, in line with our expectations. On the contrary, group trading profit was EUR 1,209 million, slightly lower than our 1,223 million estimate. Management introduced guidance for the next three years of 10% EBIT growth for the French retail business, 20 basis points annual French retail EBITDA and EBIT margin expansion and French free cash flow of EUR 500 million with gross retail capital expenditures budget below EUR 350 million per year (similar to depreciation). Casino also announced an expansion of its deleveraging plan to EUR 2.5 billion from EUR 1.5 billion previously. Given this mostly in line print, we maintain our no-moat rating and EUR 32 fair value estimate. Shares are trading in the 2-star territory, some 26% lower than the market price at the time of writing.

The new data points disclosed in the report were profitability, net debt evolution, and cash flow generation for the group and French operations. Although the French net debt position improved during the year (to EUR 2.7 billion from EUR 3.7 billion), that was primarily the result of the divestment plan with French free cash flow from operating activities excluding non-recurring items and the disposal plan at around EUR 450 million, barely covering dividends and financial expenses of more than EUR 500 million in fiscal 2018 (EUR 134 million of financial expenses and EUR 400 million of dividends). Management said that there was a negative contribution in the working capital equal to EUR 133 million by the yellow vests movement (stockpiling), which should be non-recurring going forward. Here, we note that the EUR 500 million French free cash flow midterm guidance, implies any deleverage going forward is expected to flow from further divestments only, given stable dividends and financial expenses.