Nordic Credit Rating (NCR) said today that it had affirmed its 'BBB+' long-term issuer credit rating on Norway-based grocery retailer NorgesGruppen ASA. The outlook is positive. The 'N2' short-term issuer rating and 'BBB+' issue rating on the company's senior unsecured debt were also affirmed.
Rating rationale
The long-term issuer rating reflects NorgesGruppen's leading position in the Norwegian retail grocery sector 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 its advantageous negotiating position with suppliers. The rating further reflects the company's low sensitivity to economic recessions.
We view the operating environment as more positive than previously. The company has shown resilience to challenging market conditions in recent years and has maintained its EBITDA margin in the last year despite cost increases.
The rating is constrained by NorgesGruppen's financial leverage, which is primarily driven by long-term leases but remains moderate thanks to stable cash flows. We believe the company has minimal risk appetite and a strong liquidity position, factors which support our financial risk assessment. We also believe that the long-term owners will keep the company's risk appetite under control.
Positive outlook
The positive outlook reflects our expectations that NorgesGruppen's credit metrics will improve over the next few years due to better margins. We also believe the company could obtain a stronger market position due to its competitive price mechanisms and diverse presence across the Norwegian retail grocery sector. The outlook also reflects the fact that we do not anticipate changes in legislation that would significantly weaken the company's market position or margins.
We could raise the rating to reflect NCR-adjusted debt/EBITDA sustainably below 2.5x, for example due to improved EBITDA margins. We could also raise the rating to reflect an improved market position or increased diversity of distribution and revenues, together with steady operating efficiency and profitability.
We could revise the outlook to stable to reflect new legislation that negatively impacts the company's market position, weakened market fundamentals, leading to EBITDA margins below 8%, or increased financial leverage due to higher working capital requirements or investments.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BBB+ | BBB+ |
| Outlook: | Positive | Positive |
| Short-term issuer credit rating: | N2 | N2 |
| Senior unsecured issue rating: | BBB+ | BBB+ |
Contacts:
Anine Gulbrandsen, analyst, +4797501657, anine.gulbrandsen@nordiccreditrating.com
Christian Yssen, analyst, +4740019900, christian.yssen@nordiccreditrating.com
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
The methodology documents used for this rating are NCR's Corporate Rating Methodology published on 8 May 2023, NCR's Rating Principles published on 14 Feb. 2024 and NCR's Group and Government Support Rating Methodology published on 14 Feb. 2024. For the full regulatory disclaimer please see the rating report.