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Rally without an E

05 September 2019 by jbchevrel

Casino Guichard-Perrachon (COFP) was the best performer in iTraxx Xover s31 today, with the 5y point tighter by c130bp after the Czech billionaire Daniel Kretinsky (EPH - employs 25k+ - distributes and supplies electricity as well as provides gas storage and transmission) and his Slovak business partner Patrik Tkac’s investment vehicle Vesa Equity bought a 4.6% stake. Mr Kretinsky and his partner are now COFP’s second-largest shareholder. Mr Kretinsky sounded confident in an interview that COFP was among the best positioned retailers in France. It probably reflects the fact that the group had chose to focus more onto e-commerce and premium segments (Monoprix) earlier this year. Cash also rose sharply, both 3.58 2025s and 4.05 2026s were pushed up +4c to 88 ¼ - the highest price since last May. The stock also welcomed the news, up c6% at the open, before paring gains to close +1.6%. The broader SXXP was up +0.7%. Mr Kretinsky already got a 17.5% stake in Metro Group, and a 40% stake in Mall Group (CEE e-commerce player). In June, Metro had rejected a €5.8bn takeover offer from Kretinsky & partner arguing valuation wasn’t basically high enough. Retail aside, Mr Kretinsky also has diverse investments including a stake in the French liberal newspaper ‘Le Monde’ and the football club AC Sparta Praha. The leg tighter we experienced today adds to the strong performance of the French retailer since Aug 20th – on that day it was tighter by c50bp after announcing plans for fresh asset disposals (real estate + unprofitable shops, potentially the discount chain Leader Price) that will seemingly raise c€2B by Q1-2021 end, vs a net debt of c€5B as of the end of H1-2019. The name has tightened c400bp in less than a month, now paying c700bp on the 5y. Elsewhere it was a risk-on session mainly thanks to the easing of political tensions in Hong Kong, Italy and the UK. The former seems to have paved the way to talk back between the US and China, who seem to have found a meeting date in October. Jobs data continues to be strong in the US and manufacturing data continues to print weak in Germany, with today factory orders down -2.7% MoM bringing the YoY WDA to -5.6% vs -4.2% expected. Emerging markets were particularly strong, helped by the more positive news on trade side coupled with the ongoing hunt for yield given this year’s move in G3 rates. In such a supportive environment for COFP's EM markets (incl. relatively low inflation in Brazil ~3%y, resilient consumer etc), we could see the French group boosted by its international exposure, going forward, as it was the case six years ago.