Markets paying close attention to Casino’s Latam strategy

16/05/2019 - -

Casino recently held its shareholders’ meeting and confirmed its strategic priorities for the coming years: organic products, Latin America and the cash and carry format (wholesaling to individual customers). As usual, investment funds were particularly keen to hear what Casino had to say. They are always quick to question the group’s debt reduction strategy and sometimes play the aggressive pessimism card for the purposes of financial speculation.


Latin America: a crucial market for French mass retailers


South America, especially Brazil, is Casino’s main growth driver whereas its domestic market now accounts for just 40% of its sales. So the group plans to open about twenty Assaí stores (warehouse stores) in Brazil. It is also going to develop this cash and carry format, which focuses on selling wholesale in order to keep prices down, in Colombia.
Casino’s quarterly figures, released on 25th April, drove its share price down by 5.7%. But Latin America is generating upward momentum for its sales growth, which reached 8.5% in the region. This is why the markets paid such close attention when news about the group’s plans to merge its assets in the region began to appear in the press. Casino confirmed that it was considering its strategic options but specified that it had not yet taken any decision that warranted making an official announcement to the market.
Casino’s debt level is of major concern to investors. Yet it is one of the world’s top fifteen retailers. In France, it operates under the Casino, Monoprix, Franprix-Leader Price, Vindémia and Cdiscount (e-commerce) banners. In Latin America, it owns GPA (Grupo Pão-de-Açúcar), Exito, Grupo Disco Uruguay and Libertad, which constitute its Latin Retail division. Its strategy of buying up local retail chains ensures that it has a strong presence among the region’s population.


Casino is investing to digitalise its services

Casino is also going to extend its recent partnership (March 2018) with Amazon in the distribution of food products (until now it only applied to the Paris region). This shows how keen the group is to pursue its real estate asset disposal programme on a larger scale: digitalisation helps it to scale back its retail density while adjusting to new consumer habits. Customers subscribing to this service will thus be able to select products from Monoprix’s range and receive delivery at home within two hours. The alliance shows just how much influence the American group has had on the daily lives of consumers. Amazon Lockers will be set up in 1,000 Casino stores so that customers can pick up the orders they placed on Amazon’s website. Lastly, products from Casino’s range will also be available on Amazon’s mobile application. Casino’s Chairman and CEO, Jean-Charles Naouri, says this development reinforces the group’s omni-channel strategy which aims to bring it ever closer to its customers. Meanwhile, Casino says it has sold 32 retail real estate assets to Apollo Global Management, an American investment fund.
This strategy is also part of the group’s efforts to adjust to changes in the Brazilian market. About a million Brazilian consumers have gradually turned their backs on traditional hypermarkets and switched to the cash and carry format in recent years. This strategy could, likewise, enable Casino to derail another French group’s plans for the Latin American market: Carrefour, which in 2019 was described by ABRAS (Brazil’s association of supermarkets) as Brazil’s leading retailer.


A group under the scrutiny of speculators and investment funds


Casino’s executives confirmed during the shareholders’ meeting that they aim to bring debt down below the €2bn mark from its €7.5bn peak of 2014.


Casino has been offloading assets for several years but is still struggling to reassure investors concerned about its cash-flow, which they deem insufficient. Moody’s downgraded Casino’s credit rating to Ba3 with a negative outlook in early April. It was followed by Standard & Poor’s, which also downgraded the group’s credit rating to BB- with a negative outlook. The downgrades were blamed on Casino’s supposed inability to generate growth other than by selling off real estate assets and thus to cut costs.


The share price is still tumbling and has lost around 10% in the space of 5 days. However, it would appear that Casino has been the victim of ill-intentioned speculators in recent years. Back in August 2018, stock-market research firm Muddy Waters published a tweet about the delayed publication of Casino Finance’s 2017 accounts, prompting a 10.22% drop in Casino’s share price that same day. It is worth noting that Muddy Waters is a short seller, which consists in undertaking to sell a stock that one does not yet own on a set future date at a given price. So the bet is that the share price is going to drop and that the short seller will therefore be able to sell the stock above its market price on the sale (expiration) date. The tweet could therefore be considered a form of aggressive speculation against Casino. The firm had already publicly criticised the French group’s debt level as far back as 2015.


Nicolas Barré, chief editor of Les Echos and a commentator on Europe 1, estimated in September that about fifteen investment funds worldwide were currently speculating against Casino through short selling. In these circumstances, information has indeed become a fully-fledged stock-market weapon.