Shares in France's Casino sunk to new lows on Wednesday, after brokerage Bernstein cut its rating on the stock and reignited lingering concerns over the supermarket retailer's cash flow and high debt levels.
Casino shares were down around 10% in mid-session trading, hovering at their lowest levels since late 1996.
Bernstein cut its rating on Casino to ‘underperform’ from ‘market perform’, citing concerns over how the company's franchise model might impact its profits and cash flow.
Reviewing The Impact
"We reviewed the impact of Casino's related party transactions, mainly the French franchisees, to better understand how those JVs impact profitability and cash flow of the business," Bernstein analyst Bruno Monteyne said.
"These franchisees and their transactions have a material impact on the company's profitability [and] cash flow, and therefore should be carefully considered when valuing the company," Monteyne added.
He added that while the company's EBITDA and ROI "describe the profitability of the fully owned French stores, investors need to take into account all sources of earnings and cash when valuing Casino. We conclude that investors should deduct an estimated €152 million from EBITDA, to reflect the impact of those related parties on the company's valuation."
Casino, which had its credit rating cut to junk by Standard & Poor's in March 2016, is under pressure to show that it can revive profits in France, where it competes with bigger rivals, such as Carrefour.
Casino said in June that it aimed to complete €1.5 billion of asset sales by early 2019, to cut its debts.
News by Reuters, edited by ESM. Additional reporting by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.
