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Being A Leveraged Play Can Hurt

17 January 2018 by lberuti

Today was a busy session for French retailers. CAFP ( CArrefour ) released results which were not a market moving event. They only confirmed what we already knew: 2017 was difficult, but that was in the price. It was a different story for COFP ( Casino Guichard Perrachon SA ) which also posted fourth quarter numbers. The early indication of the full year group EBIT was in line with the company’s guidance (up 20% to €1,240mln), but the quality of the result in France was weaker than expected, on the back of a weaker fourth quarter performance in hypers and Monoprix in textiles, additional investment to recruit new, loyal customers to secure market shares, and because of additional costs related to a “big data” monetisation project launched in the third quarter. The message delivered to investors was a rather negative one, notably because it missed the France Retail EBIT guidance which management had qualitatively upgraded during the first half of 2017. The 5-year risk premium of COFP was pushed 4bps wider to 159bps, but its stock ended 5% lower on the day. This fall was undoubtedly the driver of the 43bps widening of RALFP’s ( Rallye SA ) 5-year risk premium to 732bps.