Long Casino 4.87% perpetual EUR bonds
Strategic Trade / Buy
Senior Fixed Income Strategist
Instrument: Casino 4.87% Perpetual EUR bonds (FR0011606169)
Price Target: n/a
Market Price: 79.50
Casino is the fourth-largest retailer in France with 11.6% market share after Auchan, Carrefour, and Intermarche. The company is also one of the largest retailers in Latin America. Although the troubled Rallye is the company’s largest shareholder, Casino is operationally strong and it has grown operating profits faster than French competitors such as Carrefour in 2017.
The leverage of the company is expected to improve as the company is planning to sell €1.5 billion worth of assets between this year and 2019 and at the same time, restructuring costs are expected to decline. A gradual decrease in leverage could potentially lead to a ratings upgrade in the future.
After this sale, the company will still have a sizable portfolio of domestic assets which could be disposed of in the event of a deterioration in credit conditions and a consequent incapability to refinance debt. We believe that the selloff that we have seen in the market after the firm’s H1 2018 earing results was caused by investor disappointment given that guidance for FY 2018 was not revised upward and that the company has not been deleveraging as expected. The overall restructuring story, however, is still compelling.
We believe that Casino 4.87% fixed-to-floater Perpetual Hybrid Junior Subordinated Notes offer an attractive yield (approximately 9.21% yield to 2024 call), compared to peers. This bond is a hybrid, meaning that it has equity-like features such as being a perpetual and the coupon can be deferred at the option of the issuer. The coupon is fixed until January 31, 2019, from then it will pay five-year swap rates +3.819% until January 31, 2039, and then it will pay five-year swap rates +6.569%.
Although the first call date of the bond is in approximately five months, we believe that Casino doesn’t have the economic incentive to call it back. We feel that a call in 2024 is most probable as the instruments will lose its equity credit with S&P. We believe that the bond is most likely to be called back in January 2024 because of this reason and at an indicative current price of 79.50, the indicative yield to 2024 is 9.21%
Minimum piece is 100,000 nominal EUR with 100,000 nominal EUR increments. Return objective is primarily repayment and coupon payment.
Time Horizon: Strategic Trade.
See relevant charts below
You have to be aware that Rallye owns 51% of Casino, which is highly leveraged and may not be able to refinance existing debt before the end of the year. The company is high-yield (Ba3/B+) and it has a high debt-to-capital ratio and could suffer from increasing interest rates, increasing competition, and new tariffs. Default is always a possibility for low rated, highly leverage bonds.
Latest Market Insights
Quarterly Outlook Q3 2022: The Runaway Train
- Winter is coming to the financial markets as central banks are tightening their grip. How spring will look is still a question.
European energy crisis: it will get worse before it gets betterThe winter in Europe will be tough, but whether the result is political chaos or sustainable, innovative solutions is still undecided.
A difficult and volatile quarter awaitsAs the year draws to an end, commodities continue to be at centre stage of the world with growth pockets political uncertainty.
The bright side: crises drive innovationThe positive spin on crises is that they come with solutions. It is worrisome that deglobalisation may be a response to this crisis.
Green transformation in China: renewable energy and beyondGoing green, China needs to span numerous energy sources to ensure stability, as every source comes with a challenge.
Asia: Intermittent solutions, but a faster renewable adoption curveAsian energy supply is being squeezed. This and the adoption of renewables may change the investment sentiment in the region.
FX: A Fed thaw needed to deliver a sustained USD turn lowerThe US Dollar can keep momentum when the Federal Reserve continues to tighten, leaving the rest to play to their drum.
Autumn can become ugly for equities and bond holders. Comfort for Dollar longsTechnical analysis suggests that equities could face a tough Q4 as could fixed income. US Dollar positions could provide some upside.
The next stock market sector to watch, with stocks going nuclearAs the world scrambles to find affordable, sustainable energy, nuclear is getting attention from politicians and investors alike.
The crypto space is getting cold when the hype disappearsCryptocurrencies face a winter of their own as retail investors and governments are asking tough questions.