Carson Block stepped up its attack on the accounting of French retailer Casino Guichard-Perrachon SA, saying that Standard & Poor’s understated the company’s net debt.
The credit rater included the entire earnings of Casino’s Via Varejo unit even though the retailer owns 43.3 per cent, and it overstated cash by 2.6 billion euros ($2.8 billion) by including cash held at investment partners, Muddy Waters LLC said in a report on its website Wednesday. S&P rates Casino debt BBB-, its lowest investment-grade level.
Block said last month Casino is using financial engineering to mask a sharply deteriorating core business. The retailer’s debt burden is dangerously high and only being managed for the short term, according to the short seller. Casino rejected the claim, saying it has a solid financial structure and that it may take legal action.
Casino didn’t immediately respond to requests for comment, and S&P declined to comment. The report, framed as ten questions for management, sent Casino shares tumbling about 4.5 per cent, paring earlier gains, before the stock recovered to trade at €40.35 in Paris. It has dropped about 6 per cent since Block first published a skeptical report about the company last month.
Casino last month forecast profitability will improve this year, predicting domestic earnings before interest and tax of more than €500 million in 2016.
“To throw down the gauntlet, we think it highly likely that Casino’s discounting strategy has not generated much of an increase in profitability, and that the company is using property sale gains to cover this up,” Block also said in the report.
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