High Yield : Picard: The Frozen King

Our €HY coverage keeps expanding, and with this note we enter French retail sector. The first paper aims to provide an in-depth overview of the French frozen food market, combined with operational and financial performance of the leading player, Picard, that has 21% market share and 98% exposed to France from its top-line perspective . On key credit positives, the business has (i) a very long track record of stable operating performance, (ii) the leading and gradually growing market position in the attractive French frozen food market supported by strong brand that is part of the French culture, (iii) customer retention thanks to constant product innovation and adaptability to clients’ preference . Also, Picard has ( iv) ample FCF generation with structurally negative WC support expansion, (v) ability to pass cost inflation on to customers over time, and (vi) it benefits from potential lockdowns that provides some downside protection in case we see broad lockdowns across Europe again and related to that volatility in the markets. The credit profile is constrained by , in our view , (i) high leverage fueled by shareholder-friendly dividend policies, (ii) uncertainty regarding stickiness of the covid-related sales boost, (iii) limited future growth that primarily relates to GDP, (iv) lack of success on international development and 98% concentration in France, (v) a potential time lag in passing high inflation rates on to customers , (vi) risks related to brand as suppliers produce Picard branded products (albeit it is offset by higher flexibility to respond to constantly changing customer preferences) . Overall, the risks are well offset by credit positives, in our view. Therefore, we overweight subs on the back of attractive carry (~5 10 bps in terms of z-spread) for stable business with limited potential volatility even in subordinated notes.