Nordic Credit Rating (NCR) said today that it had assigned a 'BBB+' long-term issuer credit rating to NorgesGruppen ASA. The outlook is stable. An 'N-1+' short-term rating was also assigned. NCR has also assigned 'BBB+' issue ratings to NorgesGruppen's senior unsecured bonds.
Rationale
The rating reflects NorgesGruppen's leading position in the Norwegian grocery market and its high levels of horizontal and vertical integration. It also reflects the company's relatively strong margins, which are largely due to economies of scale, and strong bargaining position with suppliers. The rating further reflects NorgesGruppen's low sensitivity to economic recessions, most recently demonstrated by its strong performance since the onset of the COVID-19 pandemic.
The rating is constrained by NorgesGruppen's financial leverage, which is primarily driven by long-term leasing contracts but remains moderate thanks to stable cash flows. We believe the company has minimal risk appetite and a strong liquidity position, supporting our financial risk assessment. We also believe that the long-term owners will keep the company's risk appetite under control.
Stable outlook
The stable outlook reflects our expectations of moderate financial gearing over our forecast horizon. We expect capital investment levels to increase somewhat over the next few years, including investments to reduce the company's environmental footprint, but have not factored in major acquisitions or development projects. We expect no changes in legislation that might shrink the company's market position or margins. Our assessment of the company's financial position incorporates the prospective outcome of ongoing litigation (the so-called "price-hunter" case) by the Norwegian Competition Authority (NCA), which has alleged collusion in price fixing by major domestic grocery groups. We could raise the rating to reflect NCR-adjusted net debt/EBITDA below 2x or an NCR-adjusted EBITDA margin close to the 2020 level of 10%. We could lower the rating to reflect the imposition of major fines by the NCA, lower profitability, leading to an NCR-adjusted EBITDA margin below 5%, or NCR-adjusted net debt/EBITDA sustainably above 3x.
| Rating list | Rating |
|---|---|
| Long-term issuer credit rating: | BBB+ |
| Outlook: | Stable |
| Short-term issuer credit rating: | N-1+ |
| Senior unsecured issue rating: | BBB+ |
If you have any questions, please contact:
Geir Kristiansen, credit rating analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
Mille O. Fjeldstad, credit rating analyst, +4799038916, mille.fjeldstad@nordiccreditrating.com
The methodology documents used for this rating are NCR's Rating Principles published on 16 Sep. 2019 and NCR's Corporate Methodology published on 14 Aug. 2018. For the full regulatory disclaimer please see the rating report.