market folly

We're posting up notes from the 2014 Value Investing Congress in New York. Next up is Marcelo Lima of Heller House who presented the case for Casino Guichard Perrachon (EPA:CO).


Marcelo Lima's Value Investing Congress Presentation

Marcelo noted that bricks and mortar retail plays were clearly a common theme this year.  Marcelo is also pitching a retailer led by an owner-operator with multiple ways to invest in the system.  His presentation also involves Kerrisdale's Via Varejo, which is 26% owned by Casino Guichard Perrachon SA (EPA:CO).


Long: Casino Guicard Perrachon SA (EPA:CO)  

• Casino is seen as a French group. France looks like 65% of sales, while Brazil, Colombia and Thailand   come in at 22%, 7%, and 6%, respectively
• What really matters is the look-through earnings. On that basis, 65% of earnings are from ex-France
• €10bn market cap even though subsidiary holdings alone totals €11.4bn. This implies French   business has an implied value of -€1.1bn
• It wasn’t always this way. In 2007, half of the parent’s value came from subs
• Plays to megatrend of the rise of the consumer class in emerging countries
• Favorable demographics – urbanization trend, young consumer base, expansion in GDP per capita
• Potential catalyst: October elections in Brazil
• Controlling shareholder is Jean Charles Naouri, a quiet 65-year old polymath/genius. He was seeded  by David Rothschild and used a vehicle called Euris to take a controlling stake in companies

Background on Naouri:
• Naouri understood early on that retail was moving away from mass commerce and toward “long   tail” or precision commerce
• Naouri tailored his company’s offerings to customers accordingly and acquired land for future retail   that would benefit from proximity and convenience at both high and low ends of the spectrum
• Naouri realized that growth in France would be tough so expanded abroad in contrarian fashion   (Thailand, Brazil)

Casino’s strategy:
• Dual retail/real estate strategy. Every time Casino builds a big store in France or abroad, it builds a   shopping center around it. This creates rental income from tenants and is a hedge as retail trends   move away from big boxes
• Also strong in private label
• GPA - Brazil's largest private employer, lead retailer in food and non-food. GPA is accelerating its   expansion in the face of the recession on the basis that it is cheaper to buy land now
• Via Varejo - 26% market share with an excellent distribution network
• Grupo Exito – strong runway in Urugay and Colombia
• Big C - Thailand and Vietnam with half of EBIT coming from shopping mall rents

Best way to play all of the above: Rallye SA (EPA:RAL)
• Holding company used by Naouri to control Casino
• Trades at 30% discount to its NAV and represents a leveraged way to invest in casino
• Trades at €36, NAV €52 and Marcelo’s price target is based on a €120-150 NAV


Be sure to check out the rest of the Value Investing Congress presentations here.