July 26, 2018 / 10:37 AM / 4 months ago

French retailer Casino pushes on with asset sales yet debt concerns persist

PARIS (Reuters) - Supermarket retailer Casino (CASP.PA), which is facing investor concerns about its high debt levels, said it was making progress with its assets disposal plan, with the sale of a 15 percent stake in its Mercialys property unit.

FILE PHOTO: The logo of French retailer Casino on a shopping trolley outside a Casino supermarket in Nantes, France, July 20, 2017. REUTERS/Stephane Mahe/File Photo - RC157BF29860

Casino also said it had received indicative offers for other assets representing 700 million euros, around half of its 1.5 billion euros ($1.8 billion) disposal plan unveiled in June.

Casino, which reported a reduction in net debt and improvements in free cash flow and profits in its core French market in the first-half, also kept all its financial goals and its deleveraging targets.

However, Casino’s shares fell 8 percent by mid-session trading, having initially risen at the open, as concerns remained over the company’s debt situation. The stock was hovering near its lowest level since early 1997.

“We are well advanced in the disposal process. We are confident we will execute the disposal plan as announced,” Casino’s finance chief Antoine Giscard d’Estaing told analysts.

“Interim figures gives us confidence on our goals trading profit, cash flow generation and net debt reduction,” he added.

Casino said net debt in France was cut by 295 million euros to 4.019 billion euros while free cash flow improved thanks to better working capital and good management of inventory supply.

However, Bernstein analyst Bruno Monteyne said Casino’s debt reduction did not necessarily reflect the full picture, while Invest Securities wrote that Casino’s reduction in its debt levels seemed a bit “limited in light of its annual targets.”

Analysts at investment bank Jefferies added that Casino’s shares were vulnerable to any signs of higher interest rates.

Casino shares are down by nearly 40 percent since the start of 2018, partly on concerns over the debt position of Casino and of its parent group Rallye (GENC.PA), and over disappointing free cash flow generation in France last year.

Casino said it had agreed to sell 15 percent of Mercialys through an equity swap with a bank for 213 million euros.

Casino, which controls Brazil’s top retailer Grupo Pao de Acucar (PCAR4.SA), added that first-half operating profits reached 439 million euros, down 2.4 percent from a year-ago as adverse exchange rate movements impacted its earnings.

The group, whose credit rating was cut to junk by Standard & Poor’s in March 2016, is under pressure to show it can revive profits in France, where it competes with bigger rivals such as Carrefour (CARR.PA), while conditions in Brazil stay tough.

Excluding currency impacts, group operating profit rose 10.3 percent on an organic basis, while in France alone, operating profits from retail operations grew 17.3 percent.

For 2018, Casino has forecast organic growth of above 10 percent in consolidated profit, excluding tax credits, and for organic growth in French operating profit, excluding real estate activities, of also above 10 percent.

($1 = 0.8523 euros)

Reporting by Dominique Vidalon; Editing by Sudip Kar-Gupta

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