Groupe Casino (CO FP) is one of the most overvalued and misunderstood companies we have ever come across. The basic problem with Casino is that its financial statements are literally meaningless to understanding the company’s (poor) health. They do not distinguish between what Casino owns and what it owes. (Spoiler: we estimate Casino’s LTM leverage ratio at 8.9x.)
Casino’s controlling shareholder Jean-Charles Naouri is a genius. He won first prizes in France’s high school Latin and Greek exams, completed his baccalaureate degree at 15, and earned a PhD in math in only one year. Like the geniuses who founded the hedge fund Long-Term Capital Management, which spectacularly collapsed, Mr. Naouri has an affinity for leverage. One would expect Casino to be a relatively boring hypermarket retailer; however, together with its parent, Rallye SA (RAL FP), Casino increasingly resembles a highly levered hedge fund. One example is Casino’s total return swaps on listed equities, which we estimate have a mark-to-market loss of approximately €500 million.
Casino and Rallye are now experiencing their version of a “six sigma event”, with emerging markets (80% of consolidated EBITDA) unwinding, currencies selling-off, and a sharply deteriorating core business. Casino obfuscates these problems by (i) adding complexity to its already convoluted structure and financials, (ii) engaging in financial engineering to improve the optics of its financials, and (iii) by hollowing out the productive value of the businesses in order to keep Rallye from collapsing.
Our report peels away many layers of the onion to show that Casino is dangerously leveraged, and is being managed for the very short-term. We explain that Casino’s shares are worth as little as €6.91, and correspondingly, the shares of Rallye are likely going to zero. If Casino trades at our estimated value of €6.91, the recovery on Rallye’s bonds should be about €0.15.
To download the full report (file size: 5.2 MB), check the box to agree with the Terms of Service and then click the “Download Report” button.
The reports on this website have been prepared by Muddy Waters, LLC (“Muddy Waters Research”) and are for informational purposes only. Under no circumstances should any of these reports or any information herein be construed as investment advice, or as an offer to sell or the solicitation of an offer to buy any securities or other financial instruments.
Muddy Waters Research is an online research publication that produces due diligence-based reports on publicly traded securities. The reports contained herein are published by and the property of Muddy Waters Research, and this website is owned by Muddy Waters Research. The opinions, information and reports set forth herein are solely attributable to Muddy Waters Research and are not attributable to any Muddy Waters Related Person (defined below) (other than Muddy Waters Research).
You should assume that, as of the publication date of Muddy Waters Research’s reports and research, Muddy Waters Related Persons (possibly along with or through its members, partners, affiliates, employees, and/or consultants), Muddy Waters Related Persons’s clients and/or investors and/or their clients and/or investors have a position (long or short) in one or more of the securities of a Covered Issuer (and/or options, swaps, and other derivatives related to one or more of these securities), and therefore stand to realize significant gains in the event that the prices of either equity or debt securities of a Covered Issuer decline or appreciate. Muddy Waters Research and/or the Muddy Waters Related Persons intend to continue transacting in the securities of Covered Issuers for an indefinite period after an initial report on a Covered Person, and such person may be long, short, or neutral at any time hereafter regardless of their initial position and views as stated in the research report published by Muddy Waters Research. Muddy Waters Research will not update any report or information on its website to reflect changes in positions that may be held by a Muddy Waters Related Person.
This is not an offer to sell or a solicitation of an offer to buy any security. Neither Muddy Waters Research nor any Muddy Waters Related Person are offering, selling or buying any security to or from any person through this website or reports on this website. Muddy Waters Research is affiliated with Muddy Waters Capital LLC (“MWC”). MWC [is a registered investment adviser with the U.S. Securities and Exchange Commission and] is not registered as investment adviser in any other jurisdiction. MWC does not render investment advice to anyone unless it has an investment adviser-client relationship with that person evidenced in writing. You understand and agree that MWC does not have any investment advisory relationship with you or does not owe fiduciary duties to you. Giving investment advice requires knowledge of your financial situation, investment objectives, and risk tolerance, and MWC has no such knowledge about you.
If you are in the United Kingdom, you confirm that you are accessing research and materials as or on behalf of: (a) an investment professional falling within Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “FPO”); or (b) high net worth entity falling within Article 49 of the FPO.
Muddy Waters Research’s research and reports express its opinions, which Muddy Waters Research has based upon generally available information, field research, inferences and deductions through Muddy Waters Research’s due diligence and analytical process. To the best of its ability and belief, all information contained herein is accurate and reliable, and has been obtained from public sources that Muddy Waters Research believe to be accurate and reliable, and who are not insiders or connected persons of the Covered Issuers or who may otherwise owe a fiduciary duty, duty of confidentiality or any other duty to the Covered Issuer (directly or indirectly). However, such information is presented “as is,” without warranty of any kind, whether express or implied. Muddy Waters Research makes no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results to be obtained from its use. Further, any report on this site contains a very large measure of analysis and opinion. All expressions of opinion are subject to change without notice, and Muddy Waters Research does not undertake to update or supplement any reports or any of the information, analysis and opinion contained in them.
In no event shall Muddy Waters Research or any Muddy Waters Related Persons be liable for any claims, losses, costs or damages of any kind, including direct, indirect, punitive, exemplary, incidental, special or, consequential damages, arising out of or in any way connected with any information on this website. This limitation of liability applies regardless of any negligence or gross negligence of Muddy Waters Research or any Muddy Waters Related Persons. You accept all risks in relying on the information on this website.