French Food Pair Trade: Long Casino, Short Carrefour

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  • Casino Guichard Perrachon SA CO shares are down 30 percent year-to-date, while Carrefour SA CA shares have gained 10 percent over the same period.
  • Credit Suisse’s Stewart McGuire initiated coverage of Casino Guichard with an Outperform rating, and of Carrefour and an Underperform rating.
  • While both companies face stiff competition and a price war, and their international businesses provide scale and scope, the share price performance had been different.

Analyst Stewart McGuire mentioned that the share performances of both Casino Guichard and Carrefour are driven by their results in France. The French market is been witnessing a prolonged price war and continues to have a highly competitive landscape.

McGuire added, “International businesses at each company provide scale, scope and (sometimes) greater growth, but we have a mixed view of the sector's outlook due to ongoing margin pressures and macroeconomic headwinds.”

Carrefour: Market Expectations Too High

The analyst initiate coverage of Carrefour with an Underperform rating and a price target of €23. “We believe the market is being too generous in pricing in continued margin expansion in France and top-line growth in Brazil,” he wrote.

McGuire pointed out that there were integration risks with the DIA acquisition. Moreover, the company was dependent on financial services margin, had high capex and its overall FCF generation was lackluster.

In the report Credit Suisse noted, “We are particularly concerned about how hypermarkets, which represent over 70% of total space, will stay profitable.” McGuire projected flat sales and a 5bps decline in margins for hypermarkets until 2018.

Casino Guichard: Bad News Priced In

McGuire initiated coverage of Casino with an Outperform rating and a price target of €55. The company’s shares already reflect margin pressure in France and high exposure to emerging markets.

The analyst added, however, that “organic sales growth in all of its French banners and its relatively small footprint in hypermarkets” were not reflected in Casino’s shares.

In the report Credit Suisse noted, “Recent corporate transactions are positive steps in simplifying the corporate structure and have reduced parent company debt.”

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Posted In: Analyst ColorInitiationAnalyst RatingsCredit SuisseStewart McGuire
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