As lockdowns shutter stores and keep consumers cooped up at home, there will be many losers from the outbreak of the Covid-19 virus. But there will also be a few winners.

Casino Guichard Perrachon SA, the French supermarket operator that’s been a target for short-selling hedge funds, is emerging as a beneficiary, in line with other grocers seeing a frantic stockpiling of food on both sides of the Atlantic.

While Casino’s complex financial structure has long been a source of consternation, there are some jewels in its highly leveraged crown. These are the Monoprix and Franprix chains, both of which have strongholds in Paris.

Between its brands, Casino has more than 40% of the Paris market, compared with 11.5% nationally, according to Charles Allen, an analyst at Bloomberg Intelligence. Much of French capital is served by small supermarkets, such as Franprix, which average around 5,300 square feet. This format has been particularly strong over recent weeks, as Parisians, like city dwellers worldwide, don’t want to venture too far from their homes to stock up on groceries. And while Monoprix’s clothing range will be under pressure, demand for food has rocketed.

Casino should be able to capitalize on a boom in home delivery too. The company sells through Amazon and it just began testing an online grocery service with Ocado Group Plc. Its online non-food business Cdiscount is also expanding its grocery offer, and may benefit from increased demand for all kinds of electronics as people are forced to work from home.

But as ever with the company controlled by Jean-Charles Naouri, things aren’t straightforward. 

Despite the upswing, Casino on Thursday gave no guidance and suspended its three-year targets, saying the coronavirus pandemic makes predictions impossible. 

Although free cash flow before disposals improved, the company’s ability to deliver cash in France has been disappointing over the past couple of years. While frantic shoppers in today’s environment should give Casino a boost, its weak cash generation and high leverage shouldn’t be overlooked. Moves to sell and lease back stores over the past two years add rental payments to its financial obligations.

Net debt in France fell from 2.7 billion euros to 2.3 billion euros in 2019, helped by the asset sales. But overall borrowings rose from 3.4 billion euros to 4.1 billion euros, after Casino used debt to finance the simplification of its structure in Latin America.

What’s more, Casino has decided to hit pause on its disposal program as it grapples with “unprecedented demand,” both in its stores and online. Still on the list to be offloaded is the Geant hypermarket business.The company is in the midst of a 4.5 billion-euro divestment program, having struck 2.8 billion euros of deals so far. Of this, about 1 billion euros worth have been signed, but not yet completed. When these transactions cross the finish line, Casino should be able to repay bonds due in 2021 and 2022. 

Still, Casino must agree another 1.7 billion of disposals to reach its targets. It’s confident it will still achieve them in time and it’s done a good job so far, with a better-than-expected price just this month  from selling its Leader Price chain to German discount rival Aldi for example. But conditions could be rockier from here given the economic fallout from the coronavirus.

The disposal program is important for both Casino and its parent Rallye, Naouri’s investment group. The proceeds are key for Casino to be able to  resume paying dividends, and Rallye, which owns 52% of Casino, is counting on them. The debt-laden Rallye agreed a restructuring plan with the French courts last month that gives it 10 years to pay back 2.9 billion euros.

Although the shares initially fell as much as 7.75% on Thursday, they ended up 1.7%, cementing their outperformance over the past month. So investors seem convinced it will continue to benefit from the current crisis. But as long-time followers of  Casino know, even when the chips are looking up, there are always more spins to come.

(Corrects Thursday’s share price move in final paragraph.)

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.

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