CONSUMER STAPLES: ITM Entreprises; S&P initiates (x2)
(ITMENT; NR/BBB- Neg) (private co)
S&P singing some praise here, including making clear the differences to Auchan's hypermarket heavy exposure. It notes €750m bridge-to-bond facility of which €300m has been refi'd (29s) - together with ratings indicative of imminent supply. 29s may screen value for some (-17 today at +250) but is trading on high cash px. Hard to see it pricing with IG peers as long as Auchan remains ~distressed and it's own ratings on neg. outlook. Re. reporting clarity issues we flagged in the past; S&P coverage will help. It has annual reports public (half year for this year but unclear if that is the norm) and we will get monthly market share data (Kantar) alongside comp earnings from Auchan (half-yearly), Carrefour (quarterly) and Casino (quarterly).
- Does not consider the independent retailers under the cooperative (SLM) as part of credit assessment given "absence of cross-default, cross-acceleration, guarantees or cash pooling between SLM and the independent retailers" and fact "SLM does not provide ongoing financial support to underperforming independent retailers."
- Notes as an aside "average leverage of the independent retailers is lower than that of SLM."
- It has co's net 2.5x leverage ceiling translating to S&P adj. net 3.5x - co is currently at that (i.e. no headroom to rating threshold).
- When it came to issue we tagged net at 3.4x vs. reported 2.6x so in-line with above.
- Neg. outlook is to account for integration risk on the 294 acquired casino stores (UoP when it visited us was to fund the €1.9b acquisition). Reminder plan is to offload the stores to its independent retailers (it said at the time it may take longer than normal 6-months given number of stores - but had 89% pre-allocated already to members).
- S&P notes some risk around value received on above and if it will cover the €1.1b debt taken out
- It is also flagging potential for disagreement within the group given earnings from Casino acquisitions will only benefit a few members while the costs are integrated and shared by all.
- It notes hypermarkets only 13% of sales with the rest in Supermarkets - the difference in exposure allowing to grow market share over the last 6 years (vs. Auchan & Casino struggles). Also notes vertical integration with inhouse food production (something Auchan wants to leverage as well).
Financial reports; https://www.mousquetaires.com/investisseurs/rapports-financiers/