Nordic Credit Rating (NCR) has raised its long-term issuer rating on Norway-based grocery retailer NorgesGruppen ASA to 'A-' from 'BBB+'. The outlook is stable. The 'N2' short-term issuer rating was affirmed. The issue rating on the company's senior unsecured debt was raised to 'A-' from 'BBB+'.
Rating rationale
The rating action reflects the company's resilience to challenging market conditions, stability in credit metrics and strong operational efficiency. NorgesGruppen's credit metrics have remained stable, with moderate improvement in recent years, supported by its robust business model. It has maintained its EBITDA margin despite rising costs over time, sustaining this performance in 2024. The company consequently has a long track record of stable key metrics in a now more volatile macroeconomic environment, which supports our view of the low cyclicality of its business.
The company's EBITDA margin widened to 8.5% in 2024 from 8.3% in 2023, driven by revenue growth from an increased customer base and effective cost management. We expect the EBITDA margin to remain stable, with a slight improvement to 8.7% through end-2027, alongside continued stability in NorgesGruppen's credit metrics. In our view, the low cyclicality, increased earnings, and strong cash flows contribute positively to the company's overall financial risk profile.
The long-term issuer rating continues to reflect 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 stable margins, which are largely due to economies of scale and its advantageous negotiating position with suppliers. The company's low sensitivity to economic recessions is an additional rating strength.
The rating is constrained by NorgesGruppen's financial leverage, which is primarily driven by long-term leases but remains moderate thanks to robust and 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.
Stable outlook
The stable outlook reflects our expectation that NorgesGruppen's credit metrics will remain moderate, with net debt/EBITDA projected at 2.4x–2.5x during our forecast period through end-2027. The company's stable margins and solid cash flows provide financial flexibility to continue investing in stores and to roll out efficiency measures, facilitating long-term profitability. The outlook is further supported by the company's low sensitivity to economic fluctuations and its robust business model.
An upgrade is unlikely at this point given our already strong assessment of NorgesGruppen's business risk.
We could lower the rating to reflect new legislation that erodes the company's market position or profitability, or to reflect weakened market fundamentals, leading to an EBITDA margin below 8% over a protracted period. We could also lower the rating if we observe materially increased financial leverage due to higher working capital or investments.
Related rating actions
(i) NorgesGruppen ASA 'BBB+' long-term issuer rating affirmed; Outlook positive, 7 Jun. 2024.
(ii) NorgesGruppen ASA outlook revised to positive; 'BBB+' long-term issuer rating affirmed, 13 Jun. 2023.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | A- | BBB+ |
| Outlook: | Stable | Positive |
| Short-term issuer credit rating: | N2 | N2 |
| Senior unsecured issue rating: | A- | 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.