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Morningstar | Casino Group Reports In-Line 3Q Sales With Deleverage Plan Ahead of Schedule

With less of a presence in the declining hypermarket format than many of its rivals and high exposure to emerging economies, particularly in Latin America, Casino is not without advantages. However, a combination of intense competition, a lagging online grocery presence, and a history of questionable capital-allocation decisions leave doubt about the French grocer’s ability to deliver long-term economic returns.Casino's crown jewel, its Monoprix banner, which accounts for more than 65% of the group’s French retail operating profits, faces fierce price competition in its most important region (60% of sales from Paris and suburbs) as it is 6%-25% more expensive (including delivery fees and depending on basket size) than the newly launched Leclerc Chez Moi, Leclerc's home delivery service in Paris. Although Leclerc's new service is still light on fresh produce and range, it should be adequate to foster competition and increase price transparency in that area. Further, the latest buying alliances in the French grocery market (Carrefour with Systeme U versus Casino with Auchan) most likely point to a weakening of Casino's position relative to competition from a buying power perspective. The group is trying to bolster its omnichannel grocery offering through capital-light partnerships. In that direction, it recently announced agreements with Ocado and Amazon, though Casino’s presence in the online grocery channel is still negligible relative to peers, as opposed to its nonfood business, which is the second largest in France but still unprofitable.Casino's exposure to Latin America, the only meaningful growth engine of the group, is mostly in Brazil and Colombia, with macroeconomic and currency headwinds weighing on its margins lately.The group has been in deleveraging mode for some time now, disposing of some of its most promising businesses (Big C Thailand and Vietnam), while preserving its already high dividends. Still, with lease-adjusted net debt/EBITDAR at 3.5 times by in our estimates, Casino is the most leveraged grocer in our coverage.