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29s leading move lower today; +55bps/-2pts.
Correction from the weekly we said Auchan's approach to releasing earnings was disappointing given it had €7b in public bonds - it has €4.8b in public bonds. Point we were making there is it's a large (& still frequent) public issuer.
It's released the earnings call recording (including English layover). Not too much there and a surprisingly light on detail and length Q&A - at least for a co that reported -40% fall in EBITDA and nearly 10-figure net income loss. The question we would have been most interested to ask is around pricing vs. peers and margins - how it will mange to become more competitive on former while maintaining the latter is still unclear to us.
- First question was about if Auchan was facing similar slide to Casino. Reminder this is a competitor that struggled to compete in core French market making losses on the bottom line while carrying heavy debt load - it had to eventually restructure debt, old bonds were trading in single digits when that came around. See {CO FP Equity}.
- Auchan mgmt response was high-level. Only worthwhile point it made was pointing out different debt levels (at circa net 1-turn within Auchan retail) - valid one.
- Still it's worthwhile pulling open Casino historical financials; it doesn't look bad...till you get to bottom line/net income; chunky impairment and other restructuring charges driving losses and it drove FCF pressure as well. We saw that in 1H results for Auchan too...please don't ignore below the EBITDA line items.
- Questions around guidance and when turnaround would come were asked; answers again high-level but general themes were 1H seasonally weaker (says 30% of annual normally) and was impacted by one-offs. It says benefits should start to show in 2H and more into next year.
- Was asked about leverage; said comfortable with current levels.
- In pre-Q&A comments it said about 1/3 of €115m drag on French EBITDA was from Casino store acquisition and linked closures for rebranding. Somewhat reassuring but again we don't know how these previously loss-making stores will now perform.
- On the key French pricing war, comments remained confusing; "we are starting to reposition in price - its eating in on our margins but that is a strategic choice we have made". Yet it's prices were only -0.6% while volumes were circa -4% - i.e. it seems price investments it is doing is not enough and that is echoed in comparisons to Carrefour's sharper (& successful) price investments.
- Comments around margins again confusing "overheads are in control but are on the increase".
It was tying the rise in financing costs to refi-ing in a higher rate environment (last visit in April). It can add another 100bps to that on post-earnings moves. As we went through last week the hit to ICR's is not pleasant. Yes it has real-estate holdings, no that is not the core business and if we add on the retail arm's debt we are left with what looks like a highly levered Retail REIT running below market yields.
Adding on outstanding concerns on clarity of reporting from last week, please exercise caution.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.