Casino tumbles on damning Muddy Waters report

Shares in French supermarket operator Casino Guichard-Perrachon tumbled on Thursday after a damning report from Muddy Waters Research, which said it was “one of the most overvalued and misunderstood companies” it has ever come across.

“We are short shares of France-based retail conglomerate Casino because their value could be as little as €6.91 per share, which is 86.2% lower than its last close,” Muddy Waters said.

It added that it is also short Casino’s credit and shares of Casino’s parent and largest shareholder, Rallye, because it values them at zero.

It is also short the credit of Rallye because it considers a default probable in the next two years.

Muddy Waters, which was founded by renowned short-seller Carson Block, said its base case of €6.91 is based on estimates of numbers from the last 12 months.

The research firm said the basic problem with Casino is that its financial statements are “literally meaningless” to understanding the company’s poor health, as they do not distinguish between what Casino owns and what it owes.

“Casino’s financial statements greatly mislead investors about the value of Casino’s equity. Casino management then obfuscates and refuses to release key clarifying information, thereby continuing the misperception of value that is clear to insiders.

"On the surface, Casino appears to be prudently managed with moderate leverage (net debt to EBITDA) of only 3.0x. Unfortunately, Casino shareholders have far less cash and cash flow to meet those obligations than it appears.”

It said one would expect Casino to be a relatively boring hypermarket retailer. However, together with its parent, it 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 €500m.”

At 1305 GMT, Casino shares were down 11.6% to €43.29, while Rallye was 9% weaker at €15.30.