Nordic Credit Rating (NCR) said today that it had affirmed its 'BBB+' long-term issuer rating on Norway-based grocery company NorgesGruppen ASA. The outlook is stable. At the same time, NCR affirmed the 'N2' short-term issuer and 'BBB+' senior unsecured issue ratings.
Rating rationale
The affirmation reflects continued performance in line with our expectations. Beneficial market conditions during the pandemic boosted revenues, which are now normalising. Nonetheless, credit metrics remain strong and we expect demand in the grocery retail sector to remain relatively stable, even during a potential economic downturn.
Our 'BBB+' long-term issuer credit rating on NorgesGruppen ASA reflects the company'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 its strong negotiating position with suppliers. The rating also reflects the company's low sensitivity to economic recessions.
The rating is constrained by NorgesGruppen's financial leverage, which is primarily driven by long-term leases but remains moderate thanks to stable cash flow. We believe the company has minimal risk appetite and a strong liquidity position, which supports 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 the next three years, as well as NorgesGruppen's ability to maintain stable margins despite rising input and interest costs. 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 would significantly weaken the company's market position or margins. The stable outlook also reflects the potential of a low to moderate fine from the Norwegian Competition Authority (NCA) related to the 'price-hunter' case.
We could raise the rating to reflect an NCR-adjusted EBITDA margin sustainably above 10%, leading to improved credit metrics, or to reflect an increased diversification in distribution and revenues, with maintained operating efficiency and profitability. We could lower the rating in the event of major fines by the competition authority, or the implementation of new legislation negatively impacting market positioning. We could also lower the rating to reflect lower profitability, leading to an NCR-adjusted EBITDA margin below 5%. Or to reflect an NCR-adjusted net debt/EBITDA above 3x and an NCR-adjusted EBITDA/net interest below 6x over a protracted period.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BBB+ | BBB+ |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N2 | N2 |
| Senior unsecured issue rating: | BBB+ | BBB+ |
Contacts:
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@nordiccreditrating.com
The methodology documents used for this rating are NCR's Corporate Rating Methodology published on 18 Feb. 2022, NCR's Group and Government Support Rating Methodology published on 18 Feb. 2022 and NCR's Rating Principles published on 24 May 2022. For the full regulatory disclaimer please see the rating report.