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Fnac Darty (FNACFP; NR/BB+ Neg/BB+ S) 1H Preliminary Results & Acquisition

CONSUMER CYCLICALS
  • 1H preliminary results are sales of €3.39b (+0.1% LFL) and EBIT loss of -€36m (1H tends to be seasonally weaker). FY target for "current operating income" of "at least equal of 2023" and FOCF of €180m is reaffirmed.
  • It's announced acquisition of Unieuro {UNIR IM Equity +36% to 11.26} at €12/share with €9/share in cash and rest in Fnac shares.
  • The cash amount is eqv. to €180m but this is a JV with PE player Vesa Equity Investments split at 51/49 on ownership. Vesa will finance most of it (€122m) leaving Fnac to pay €56m. It says that €56m is the full impact/increase on net debt increasing the leverage ratio +0.3pt given Unieuro's BS is net debt of €0b.
  • Fnac reports leverage without including its €1.1b in leases which more than doubles its debt position (to €2b). Including leases it was gross 3.8x levered and net 1.8x (on a €1.1b cash pile) to end last year.
  • Re. Unieuro it is an Italian retailer (says 17% market share - in Specialised retail?) with €2.6b in sales, an EBITDA margin of 5.5% (vs. Fnac's 7%), EBIT 1.3% (Fnac 2-3%) and FCF around €50-100m in recent years (Fnac €200-500m).

Deal itself looks margin dilutive but positive is little BS impact and brings FCF in. We are more concerned for Fnac standalone that looks to be struggling; on both headline (no growth for now 3 years) and margins (last year was weak so operating income flat to that is not great guidance). Single €550m 29s (NR/BB+ Neg/BB+ S) are little changed at €103.6/5%/OAS+190/Z+200 to par call in 4yrs. No firm view here but not showing value in our eyes (Finnair's bullet 29s is at Z+217 on similar ratings with government uplift and a cheap view of ours).
Full 1H24 results will be released coming Wednesday (24th) after the close and acquisition will require regulatory approvals.
Presser on acquisition
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