October 11, 2024 09:29 GMT
CONSUMER STAPLES: Alimentation Couche-Tard (Baa1/BBB+) S&P comments on 7-11 bid
CONSUMER STAPLES
S&P commenting on 7-11 (a Yen only issuer rated A1/A);
- Sees the restructuring (the effective spin-off of supermarket/speciality stores in Japan) as helping funding shareholder pay-outs and a defence to Couche-Tard's bidding (consensus view).
- Re. the FY guidance cut (EBIT trimmed by -26% and driven by weakness in overseas 7-11 stores); it doesn't expect a recovery anytime soon in the US and sees pressure on leverage threshold of 3x. It saw it at 2.6x at the end of last year.
- Regarding how much of this Couche is also facing; yes pressure on margins (group level -107bps yoy in the 1Q/to July) but faring better than 7-11 drops particularly given outright EBIT margin of 6.2% (vs. 7-11 group at 3.1% and overseas 2.3%).
- Unfortunately Couche's guidance is not great either - indications in the early Sept earnings call was for same store sales to continue facing yoy declines. It was indicating a potential gross margin rebound ahead though. Earnings should come in late Nov.
7-11 equities continuing to hold relatively stable; we see it pricing a 55% chance of closing at Couche's revised (bbg) offer. Real probability may be biased a lower (given increasing prospect of substitute equity pay-outs if deal fails).
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