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    BTOW3   BRAMERACNOR6

AMERICANAS S.A.

(BTOW3)
  Report
Delayed Bolsa de Valores de Sao Paulo  -  04:07:57 2023-02-07 pm EST
1.360 BRL   -21.39%
04:58pBrazil's Itau Unibanco plans higher provisions for bad loans in 2023
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02/03Brazil's Americanas board to remove top executives after accounting scandal
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02/03Brazil's Americanas board to remove top executives after accounting scandal
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Fitch Downgrades Americanas' LC IDR to 'BB' from 'BB+' and Affirms FC IDR at 'BB'; Outlook Negative

11/07/2022 | 07:47am EST

Fitch Ratings has affirmed Americanas S.A. (Americana)'s 'BB' Long-Term Foreign Currency (FC) Issuer Default Rating (IDR) and senior unsecured global notes issued by its wholly owned subsidiaries JSM Global S.a r.l. and B2W Digital Lux S.a.r.l.

At the same time, Fitch has downgraded the company's Long-Term Local Currency (LC) IDR to 'BB', from 'BB+', and its Long-Term National Scale Rating to 'AA+(bra)', from 'AAA(bra)'. In addition, Fitch has downgraded Americanas' unsecured debentures to 'AA+(bra)', from 'AAA(bra)'. The Rating Outlook for the corporate ratings is Negative.

The downgrade of the LC IDR and National Scale Rating reflects the company's high total and net leverage metrics expected to 2022 and 2023, inconsistent with the previous ratings. Slow improvements in EBITDA generation, high interest expenses and relevant working capital needs should result in relevant cash burn in 2022, which should be financed by additional debt. The company's strategy to delay high total debt level reduction is also seen as a negative credit consideration. The Negative Outlook reflects the uncertainties Americanas has to improve cash generation and reduce its leverage to levels consistent with the current ratings in a challenging macroeconomic scenario in Brazil.

Americanas' large business scale and strong competitive position in the Brazilian non-food retail industry, and reported long track record of adequate operating cash flow through several economic cycles support the ratings. The ratings also reflect Fitch's expectation that the company's liquidity will remain robust and debt amortization schedule adequate.

Key Rating Drivers

Increasing Leverage Metrics: During 2022, Americanas' total and net adjusted leverage are expected to materially increase to 7.2x and 4.7x, respectively, and should remain above 5.0x and 3.5x over the next two years, according to Fitch's projections. Relevant cash burn during 2022 should result in increasing net debt by material amount of BRL3.8 billion. Net debt is not expected to decline in the following years. Fitch's concerns are also on the outstanding total debt, which should remain high, different from our previous projection, which is likely to put pressure in the company's cashflow due to the high interest rate in Brazil.

Margin Contraction: The expectation of a weak economic environment, combined with strong competition and a greater share of the online business, should pressure Americanas' operating margins in 2022 and 2023. The company's EBITDAR margin should decrease to around 11%-13%, in 2022 and 2023, compared to margins close to 16% from 2018 to 2021. The agency's rating case incorporates same store sales (SSS) growth slightly above inflation from 2022 onwards. Online businesses should remain pressured by weak consumption power and increasing competition, combined to the inflationary scenario, which should limit sales expansion.

FCF Under Pressure: Working capital needs, high interest expense and expansion investments should continue to negatively impact Americanas' FCF. The base case scenario assumes that EBITDAR and cash flow from operations will reach, respectively, BRL3.4 billion and negative BRL1.2 billion in 2022 and BRL3.8 billion and BRL600 million in 2023, with negative FCF by around BRL4.0 billion in the two years. The marketplace should represent 20% to 25% of consolidated EBITDAR in the medium term. Annual investments are expected to be around BRL2.0 billion from 2022 to 2025, with the company's physical sales area growing by 4% in 2022 and 3% from 2023 onwards.

Solid Business Profile: Americanas operates the largest chain of physical department stores in Brazil, which allows it to have a resilient performance over several economic cycles. The company also has one of the largest e-commerce platforms in Latin America, which contributes to its diversification of sales channels and represented 41% of its consolidated revenues in 2021.

In addition to its non-food retail chain, the company has just entered into the food retail market in order to strengthen and diversify its client basis. Aggressive competition from large groups remains an important challenge for Americanas. The ongoing strategic investments in technology and logistics should strengthen its presence in the Brazilian market of physical stores and online retail.

Derivation Summary

Americanas' 'BB' FC IDR is below great part of Latin American peers. Its geographic concentration in Brazil differs from Falabella S.A. (BBB/Stable), which operates in more than one market in Latin America. Americanas' exposure to Brazil's economic environment and negative FCF trends also differentiates the company's risk from its peers. Although El Puerto de Liverpool S.A.B. de C.V. (BBB+/Stable) is also concentrated in only one market-Mexico-it is one of the strongest rated retailers in Latin America.

The company's historical retail only adjusted gross adjusted leverage is consistently below 1.0x, stronger than Americanas' metric above 4.0x. Americanas and Grupo Unicomer Corp (BB-/Positive) enjoy similar business profile, operating with a diversified portfolio in department store segment; however, Americanas is better positioned than Unicomer due to its higher profitability. Despite geographic diversification, most of the sovereign ratings of countries in which Unicomer operates are in the 'B' rating category.

Key Assumptions

Sales area expansion of 4% in 2022 and 3% from 2023 onwards;

SSS growth of 9.7% in 2022 and 7.5% in 2023;

Marketplace representing 60% of online gross merchandise value in 2022 and 65% in 2023;

Total capex of BRL4.0 billion in the 2022-2023 period.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

The Negative Outlook may be revised to Stable if adjusted net debt/EBITDAR ratio tends towards 4.0x;

Positive Rating Action can occur if the total adjusted debt/EBITDAR and adjusted net debt/EBITDAR ratios are 4.5x and 3.0x, respectively, on a sustainable basis.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

Negative action on the sovereign rating could lead to negative action on the Americanas' Foreign Currency IDR and the rating of the unsecured notes;

Weakening liquidity;

Adjusted net debt/EBITDAR ratio above 4.0x on a sustainable basis.

Best/Worst Case Rating Scenario

International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.

Liquidity and Debt Structure

Liquidity Remains Strong: The robust liquidity position continues to be key rating support for the 'BB' rating. The analysis incorporates the expectation that the company will maintain sound liquidity profile and a manageable debt amortization schedule. The company has also a broad access to credit lines to finance its negative FCFs. As of June 2022, cash and equivalents were BRL6.8 billion, compared to total adjusted debt of BRL23.2 billion, including approximately BRL5.3 billion in rental obligations, as per Fitch's methodology.

Of the BRL3.9 billion short-term debt, BRL2.3 billion correspond to anticipated receivables related to retail activity (disregarding the discount of receivables from marketplace businesses), according to Fitch's methodology, and is not dependent on the company's cash for liquidation.

Issuer Profile

Americanas is one of the largest diversified retail chains in Brazil, with a wide platform of physical stores, a robust e-commerce, a fintech, and has just entered into the niche food retail. It is listed on B3, being indirectly controlled by Jorge Paulo Lemann, Carlos Alberto Sicupira and Marcel Telles.

Summary of Financial Adjustments

Fitch uses a multiple of 5x to capitalize Brazilian companies leasing adjusted debt.

Fitch includes the factoring of account receivables on debt. Fitch adjusts short-term and long-term marketable securities back to cash and equivalents. Fitch considers the financing to the marketplace sellers as finance activity. Applying methodology, the finance service activity has a debt/equity leverage ratio of 2.0x. The asset of the financial service activity corresponds to the receivables related to the marketplace business, so, half of this asset is financed by debt, which is deconsolidated from total debt.

Sources of Information

The principal sources of information used in the analysis are described in the Applicable Criteria.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.

(C) 2022 Electronic News Publishing, source ENP Newswire

All news about AMERICANAS S.A.
04:58pBrazil's Itau Unibanco plans higher provisions for bad loans in 2023
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02/03Brazil's Americanas board to remove top executives after accounting scandal
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02/03Brazil's Americanas board to remove top executives after accounting scandal
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02/01Large Brazilian banks may set aside around $890 million for Americanas losses in Q4
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01/31Brazil's Americanas requests financing of at least $197 million -filing
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01/31Americanas' accounting inconsistencies concerning, says Brazil minister
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01/30Brazil group seeks injunction against PwC, regulator for Americanas accounting scandal
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01/27Brazil Banks' Earnings to Be Hit by Provisions for Americanas, Moody's Says
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01/26Brazilian court orders seizure of emails of bankrupt retailer Americanas
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Analyst Recommendations on AMERICANAS S.A.
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Financials
Sales 2022 30 752 M 5 932 M 5 932 M
Net income 2022 160 M 30,9 M 30,9 M
Net Debt 2022 8 411 M 1 622 M 1 622 M
P/E ratio 2022 5,58x
Yield 2022 15,9%
Capitalization 1 227 M 237 M 237 M
EV / Sales 2022 0,31x
EV / Sales 2023 0,28x
Nbr of Employees 10 781
Free-Float 69,2%
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Mean consensus OUTPERFORM
Number of Analysts 2
Last Close Price 1,73 BRL
Average target price 29,23 BRL
Spread / Average Target 1 590%
EPS Revisions
Managers and Directors
JoŃo Guerra Chief Human Resources Officer
Camille Loyo Faria Chief Financial & Investor Relations Officer
Eduardo Saggioro Garcia Chairman
Mauro Muratˇrio Not Independent Director
Vanessa Claro Lopes Independent Director
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