ASDA - comment

With over £1bn of available liquidity (post the November £560m sale and lease back transaction), ASDA has sufficient cash to cope with the volume recovery programme being pushed back by two quarters. Q3 2025 results were significantly impacted by stock availability issues post the Walmart separation in Q2/Q3. Management was noncommittal on the repayment of the Walmart PIK; this debt will be one priority, but we expect flexibility from Walmart as ADSA spends up front to reposition itself in the longer term and, in the shorter term, looks to entice back customers disappointed by the availability issues in Q2/Q3 this year.

Q4 2025 Revenue has been guided as below: Q3 (Q4 is normally 7% - 10% above Q3), EBITDA will be further impacted by higher marketing costs. We are updating our model, but we expect EBITDA to be £800m - £825m in 2025. The £1bn available cash is sufficient to cover negative free cash flow through 2028, but ASDA is likely to do one more S&L deal to boost cash (probably in 2027). Pricing the S&L deal at c7.5% is an attractive cost of finance, albeit it will put 0.65x of a turn of leverage ahead of the SSNs.