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Carrefour (CAFP; Baa1, BBB; S) {CA FP Equity} 1Q results tomorrow morning

CONSUMER STAPLES
  • French super/hypermarket operator Carrefour brings 1Q results tomorrow morning, sparse consensus (x3) looking for +6.5% growth (organic).
  • Moody's affirmed it at Baa1 last month on assumption gross debt/EBITDA would fall from 3.5x to 3x post acquisition activity. Healthy cash on BS dismisses any liquidity issues, but weak margins with still expected headwinds in France retail & sizeable pay-outs; its targeting 5%+ growth in dividends ahead with this year seeing €700m in buybacks and ~€600m in dividends vs. expected €1.5b in FCF - all leave net downside risk on ratings/deleveraging path.

  • We're particularly nervous for any French weakness given read-through to Elo/Auchan (NR, BB+; S) (52% of revenues, ~1% EBITDA margin). Analyst are already flagging weakness for Carrefour after food price deflation.
  • Elo's new issue 28's looked close to a free-lunch on a 57bp NIC & >20bp negative basis on longer 5yr CDS; its come in only 15bps since pricing while secondary including shorter 27s and longer 28/29s have adjusted +50bps wider. Roll-down to 27's still attractive as is basis (5Y CDS at 261, +20 since pricing) but we again would flag potential rough earnings ahead when it reports 1H results (generally late July to August).

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