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French supermarket operator Casino Guichard-Perrachon suffered the infamy of being hit with its second junk rating in a little over a year on Monday after Fitch Ratings became the latest to strip the company of its investment grade status.
Fitch cut its rating on Casino by a notch from BBB- to BB+, citing challenging conditions in the company’s French home market and the group’s high debt levels for the move. It kept its outlook on ‘stable’.
The downgrade reflects the weaker-than-expected profit growth in Casino’s core French market in 2016 relative to Fitch’s expectations.
We acknowledge Casino’s somehow lower presence in the challenged and low-margin hypermarket format relative to Carrefour, and its intention to focus efforts on the development of the higher-margin premium segments. However, EBITDA uplift is likely to be capped by weak demand and high competition. Since France represents 71% of proportionally consolidated EBITDA (2016, continuing activities), there is limited scope to improve group’s proportionally consolidated metrics.
The downgrade comes just 13 months after S&P downgraded France’s second-largest supermarket operator into speculative territory.
The comments on the difficult French market are also a timely reminder of the challenge that the winner of the French presidential election run-off will face in reviving France’s moribund economy.
Casino, which also has extensive operations in Brazil, has been under fire from Muddy Waters, the US short-seller, which last year described the company as “one of the most overvalued and misunderstood companies we have ever come across”.