ASDA - comment

Asda’s Q2 results should have limited impact on bond pricing, as the weak operational performance is consistent with management’s previous guidance that the recovery would take time. Ex-fuel revenue fell 3.4%, and EBITDA declined 9.2% to £202m, resulting in margins contracting 31bps to 3.1%. However, Q3 LFLs have turned positive, and food margins are returning to growth, supporting management’s view that the recovery is progressing. Free operating cash flow was £322m, helping reduce net debt to £3.2bn and leverage to 4.4x, although £217m of operating cash flow came from working capital and should not be annualised. Liquidity remains strong with £1.2bn of cash, while the maturity profile provides good visibility and no immediate refinancing pressure. For the bonds, the key remains whether the improving Q3 trading translates into a sustained recovery in EBITDA and recurring free cash flow.