Nordic Credit Rating (NCR) said today that it had revised its outlook on the 'BBB+' long-term issuer rating on Norway-based grocery retailer NorgesGruppen ASA to positive from stable. At the same time, NCR affirmed the long-term rating and the 'N2' short-term issuer rating. The senior unsecured issue rating was affirmed at 'BBB+', in accordance with NCR's revised corporate rating methodology. The ratings are no longer under criteria review.
Rating rationale
The outlook revision reflects the possibility that we could raise the rating if NorgesGruppen can cement improvements in its market position and improve its margins, as we currently project. It also reflects our expectation that the company will be able to adjust prices as the wider grocery retail sector returns to normal after the worst of the COVID-19 pandemic and recent cost inflation. NorgesGruppen has demonstrated its resilience in recent years and we expect the company to maintain low sensitivity to economic recessions. We also believe that the company will likely maintain its strong market position and price leadership thanks to economies of scale and an advantageous negotiating position with suppliers.
We have raised our assessment of risk appetite to reflect the stability of NorgesGruppen's credit metrics, low operational leverage, and moderate level of capital investment. Options to extend leases of store premises provide the company with additional strength, although we exclude this factor from our calculation of net interest-bearing debt. We also believe that the long-term owners will maintain the company's low risk appetite.
Positive outlook
The positive outlook reflects our expectations that NorgesGruppen will improve its credit metrics beyond 2023 due to better margins. We also believe the company could obtain a stronger market position as market conditions normalise. The outlook also reflects the fact that we do not anticipate changes in legislation that would significantly weaken NorgesGruppen's market position or margins. We also expect that the Norwegian Competition Authority will impose only a small fine on the company for breaching anti-trust legislation (the so-called 'price hunter' case).
We could raise the rating to reflect NCR-adjusted debt/EBITDA sustainably below 2.5x, for example due to stronger EBITDA margins, an improved market position, or increased diversity in distribution and revenues amid steady operating efficiency.
We could revise the outlook to stable to reflect any new legislation that negatively impacts market position or major fines by the competition authority. We could also revise the outlook to stable to reflect continued weakness in market fundamentals, leading to EBITDA margins remaining below 8%, or to reflect increased leverage due to higher working capital requirements or investments.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BBB+ | BBB+ |
| Outlook: | Positive | Stable |
| Short-term issuer credit rating: | N2 | N2 |
| Senior unsecured issue rating: | BBB+ | BBB+ |
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 8 May 2023, NCR's Rating Principles published on 24 May 2022 and NCR's Group and Government Support Rating Methodology published on 18 Feb. 2022. For the full regulatory disclaimer please see the rating report. NCR - NorgesGruppen_ASA - Full Rating Report 13 Jun. 2023.pdf (493.51 KB) NCR - NorgesGruppen_ASA - Rating Action Report 13 Jun. 2023.pdf (142.24 KB) NorgesGruppen ASA BBB + Positive Corporate N2 Off On Off