Ceconomy : Approaching FY 26 targets, but some uncertainty and risks prevail

The question we addressed many times in the last couple of months with Ceconomy was if it intends to redeem the 2026 bond early (maybe via open market purchases and making a clean-up call afterwards)? EUR 144m remains outstanding and the bond matures in June 2026. Ceconomy told us more than once that they will wait for maturity and that the overfunding from the issuance of the 2029 bond last year will be used then to repay the remaining amount of the 2026 bond. This is our base case scenario.
Q1 25 results (ending 31 Dec 2024), including the important holiday season, saw a strong start for Ceconomy into FY 25. Growth, even in the recently pressured DACH region, was more than solid on a LfL basis. There was some earnings headwind in Eastern Europe, but adj. EBITDA (and adj. EBIT) improved nicely. All in all a good set of numbers and the company just confirmed the FY 25 guidance. Our model assumes that Ceconomy will head towards its EUR 500m adj. EBIT target for FY 26, but not fully hit the number – in line with equity consensus. The adj. EBIT bridge from FY 24 to FY 26 is not fully clear to us given that it consists of too many items to consider and as such an exact calculation and understanding the bits and pieces cannot be reproduced by us.
Investors involved in the 2029 bond need to keep an eye on competition in Germany as Coolblue and Galaxus have high ambitions. Ceconomy is responding with its increased service offering. About EUR 4bn of revenue is at stake in Germany.
The rumor that JD.com is interested in Ceconomy exists since winter 2023/2024 and once in a while creates some waves. There exist change of control clauses under the bond documentation, but the 2026 bond would require also a rating downgrade (JD.com is rated A3/A-) and the 2029 bond is trading at c. 105.4%, which denies executing the investor put.
That Ceconomy would acquire FNAC is not on our cards anymore since the former did not participate in the rights issue for FNAC’s acquisition of UniEuro. If management would have in mind to go for FNAC in a timely fashion they would have safeguarded their shareholding. But in some years from now – who knows? For JD.com, the FNAC shares owned by Ceconomy are maybe of strategic interest, too. If they would go for Currys in the UK as well, then they would have a strong store presence on the entire continent.
Our base case and Ceconomy meeting its FY 26 targets would result in an upgrade by S&P during CY 2026. The implied stronger credit profile via (a potential) acquisition by a strong acquirer (JD.com) would accelerate this process, but this is speculation. For now, we affirm the Stable Credit Opinion. Lifting it to Positive is possible in the next credit update, though.
Current investor compensation, even if we would see an immediate upgrade to BB, is not splendid. As such we adopt a Neutral (vs. Reduce) recommendation on the 2029 bond (with an assumed workout in 2026) and affirm the Reduce recommendation on the 2026 bond, given the very low yield. The bond might be interesting though for short duration investors.