Leading retail analysis firm Bernstein Research has suggested a number of areas in which the new chief financial officer at French retail giant Groupe Casino David Lubek could improve transparency at the business and improve the company's valuation.
Lubek was announced as the retailer's new CFO last Tuesday (20 November), replacing Antoine Giscard d'Estaing, who has left the business after ten years to ‘pursue new professional projects’.
Group Positives
In a briefing note, Bernstein Research said that Casino's strategy has been 'materially more forward-thinking in the past five years than its peers', adding that it now boasts a 'more diversified portfolio of retail channels', and is ahead of several competitors in terms of 'repositioning its formats'.
It also boasts 'dominant positions in structurally-attractive emerging markets', Bernstein noted, such as Colombia, Brazil and Uruguay.
At the same time, Bernstein added that the Casino business is complex, with difficulty 'understanding how each subsidiary’s accounts are consolidated into the Casino accounts', noting that this is not just 'a matter of FX conversion'.
In addition, Bernstein says there are several cross holdings within the business, which 'complicate the valuations of each subsidiary'.
'All this leads to a unanimous view amongst investors that Casino is a complex company to understand and model,' Bernstein said.
Suggested Measures
Among the suggestions for the company's new CFO, Bernstein says that one is to ensure clarity on the cost of the company's head office, both on an underlying and non-underlying basis, adding that 'a potential investor cannot truly value the Casino group without knowing the size of head office costs'.
Elsewhere, further transparency is needed on the nature of 'other liabilities' in the Casino balance sheet, Bernstein says.
In addition, in terms of joint ventures undertaken by Casino, 'investors need to know what the impact is on EBITDA from the careful choice and differences in ownership stakes between loss making and profitable JVs', noting that more transparency is needed on the nature of terms by which joint ventures are enacted.
Clarity is also needed on Casino's sustainable tax rate, with the group paying a 20.4% underlying tax rate in 2017 FY, a figure that Bernstein believes is 'surprisingly low' given the business international footprint.
'Similarly to the very low cost of financing, we commend Casino for optimising its tax affairs in such an efficient manner,' Bernstein said.
'We are not able to trace how this low tax rate has been achieved. However, we struggle to see this as a sustainable tax rate going forward and for investors worrying about sustainability of the French debt, this should be a key concern.'
The full report is available from www.bernsteinresearch.com
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