Casino – More Issues Arise, Says Muddy Waters

Casino – More Issues Arise, Says Muddy Waters

New Information on Casino Casts Additional Doubt on France Recovery; Governance Problems in Brazil Appear Larger Than Admitted (CO:FP)
Based on new information, we are revising downward our estimate of 2014 adjusted France retail EBITDA by 9.1%.
Our investigators uncovered strong evidence that indicates in H2 2015 the company has stretched payables to its suppliers in France to levels beyond what was typical of Casino, and generally accepted in France.
The companies’s announced sale of its crown jewel stake in BigC Thailand validates our thesis that the company is hollowing itself out in order to sustain the debt load largely held at the parent level and at Rallye.
Our investigators found evidence that the accounting and governance problems with Casino’s consolidated subsidiaries Cnova and GPA in Brazil are likely much greater than have been disclosed, and that these problems are likely attributable to the company’s decision to force out GPA Chairman Albio Diniz, son of the company’s founder, in 2013. The information our investigators collected certainly calls into question Casino’s ability to operate its far-flung retail empire, and its willingness to be forthright with investors.
We found a strikingly similar analog to the company’s situation in that of Israeli supermarket chain Mega, where many mistakes by management led to the collapse of a once promising company. Like Casino, Mega was highly-levered, paid out unsustainable dividends, and has a questionable relationship with an affiliated property company.

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Casino’s management shows strong indications of deception toward investors on numerous key business issues. We engaged a behavioral analyst who worked for the U.S. Central Intelligence Agency to analyze the company’s call transcripts and its responses to our prior analyses.



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We now estimate that the company’s adjusted France EBITDA from retail sales shrank 36.0% YoY in 2014, versus our prior estimate of 30.0%. We further believe this negative trend has continued well into 2015 – however, we won’t know for certain until Casino files the 2015 accounts for subsidiary L’ Immobilière Groupe Casino. Our review of the 2014 annual report of L’ Immobilière Groupe Casino has caused us to significantly revise upward our estimates of the company’s EBITDA inflation through property sales to affiliate Mercialys

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