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Casino Group refutes Bernstein report about franchisee transactions

Casino Guichard-Perrachon SA on Aug. 8 refuted a report released by research firm Sanford C. Bernstein Ltd. that said the French retailer's franchise strategy "does not seem as straightforward" as previously assumed and recommended that investors revise their valuations of the company.

Casino Group has historically sold loss-making stores to franchise owners in a bid to improve profitability. It also holds a stake in some of those franchisee operations.

"Our review of some of Casino's JV transactions leads us to conclude that the impact of those related parties is more material than we previously perceived, warranting an adjustment to the EBITDA we use for valuation, based on the more detailed disclosure in the Casino accounts," Bernstein analyst Bruno Monteyne reported Aug. 8.

Monteyne said investors should slash about €152 million from the food conglomerate's EBITDA in order to determine Casino's proper valuation.

In response, Casino Group noted that, contrary to what was reported, the retailer is not obligated to buy back loss-making stores that were transferred to franchisees.

Casino explained that the stores sold in 2015-2016 have shown encouraging recovery and that "in a very unlikely scenario where all the stores transferred would have to be simultaneously closed, the one-off cost for the group would be limited to around €50 million."

The company noted that due to the transferred stores' performance in those years, Casino sold some additional outlets to franchisees at the beginning of 2018, while other locations were closed.

"As acknowledged by the analyst in the report, the results of the franchise partnerships are fully disclosed and appropriately accounted for," Casino said.