Description
Casino, the French supermarket chain has recently gone through restructuring, its post-reorg equity creates and interesting and unique opportunity. Company is now made up of a chain of urban convenience stores under the Monoprix, Franprix and Casino Convenience brandnames in mostly highly attractive locations.
Prior to the company’s voluntary restructuring, Casino was made up of a number of hypermarkets, supermarkets and smaller-format convenience/grocery shops.
Casino was founded in 1898, and operated mainly in France and a handful of developed markets when about 20 years ago, the company went on a debt-fueled acquisition spree, which eventually bankrupted the business. Specifically, the company borrowed against their footprint in developed markets to expand in Latin America and parts of Asia.
The main issues came from the company’s lossmaking hypermarkets and supermarkets, which operated in a competitive environment. In addition to the high fixed-cost base stores, high interest expense further added to the cost base, the lack of funds for working capital also didn’t allow the stores for optimize for their product offering.
The company has been in restructuring mode for most of the last 10 years through assets sales and deleveraging.
In June 2023 the company announced that it was going through a voluntary restructuring, which completed recently, and shares in the “new” company started trading 2 trading days ago on March 28, 2024.
Main points of the reorganization to date:
- Casino post-reorg will be made up of convenience stores under brandnames Monoprix, Franprix and Casino Convenience, rest has been divested
- Company sold all of its hypermarkets and supermarkets (sold 313, except for 22) for a consideration of €1.35Bn to Les Mousquetairse and Auchan Retail (deal completed in December 2023)
- Consortium of investors (Daniel Kretinsky’s EP Equity Investments, Fimalac and Attestor) injected €1.2Bn of fresh capital for an equity stake of 53%
- Creditors and existing shareholders injected an extra €275MM
- Debt was reduced by 75% to around €1Bn
- Philippe Palazzi named as CEO (fomer COO of Metro, former Chairman of Metro France)
- Former CEO Jean-Charles Naouri ousted after 30-year tenure
- Simplified group structure as holding company Rallye wound up
- Restructuring process approved by regulator, old shareholders and creditors on February 25
Post-reorganisation, company’s market cap at the last quoted price of 4c/share is around €1.4Bn; net debt is at €1Bn which makes an EV of €2.4Bn.
Post reorg, there are a lot of low-hanging fruits that could help increase top-line and reduce costs
- Right-sizing and refurbishing stores that have been capex deprived for last years
- Cash injection to help working capital situation and facilitate putting the right goods and produce on the shelves
- Company currently has 3 headquarters which can be reduced to 1
- Further voluntary then formal redundancies over the next 9-18 months
- Consortium has 53% stake, with this majority they have control over restructuring process
Company has released a presentation in December 2023, where they outline segmental EBITDA they expect to reach €450MM in 2025E and €638MM in 2026E. Group revenues are expected to be €10Bn ex-hyper/supermarkets, potential for 5-6% EBITDA margin is not a tall ask post restructuring.
Based on these projections, at current prices one can invest in a well-capitalised, right-sized convenience store chain at 3.8-5x EV/EBITDA, which we find to be a highly interesting opportunity. This is about 15% lower than the level the Consortium injected capital. Undoubtedly execution risks remaining, but the business in a strategic sale in a couple of years could fetch 8-10x EBITDA, resulting in a near 100% upside.
Risks
- Delays and difficulties in executing the restructuring plan
- Operational issues given competitive environment
Further information on restructuring
https://www.groupe-casino.fr/en/investors/financial-restructuring/
I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise may hold a material investment in the issuer's securities, and investment decisions are made at your own risk.
I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.
Catalyst
- Further execution of restructuring plan
- M&A
- Sellside coverage
- Investor discovery