CONSUMER STAPLES: Barry Callebaut widening continues
(BARY 29s; Baa3/BBB-)
€29s another +5 today now +45 from Oct and +35 from pricing. It was a value view in primary and performed in secondary (-25). We first flagged catalyst turning neutral in July last year (after Q3 results) - but still noted excess carry was on offer.
Levels will look interesting here even for HY investors, but we encourage some caution till we see next weeks (backward looking) numbers and (perhaps more importantly) managements commentary on i) any expectations for continued funding requirements on working capital and margin calls this year ii) the outcome from discussions it is having with clients on pass-through contracts and iii) how far away it thinks a easing in the cocoa supply side issues may be.
For RV please note the CHF curve on XCCY has always traded tighter; at issuance it was -45 and is holding -40. Yesterdays new issues gave 15bp NIC on CHF secondary, implying only a 25bps premium now. Re. the equity weakness (-30% since Oct) it still trades at a healthy trailing P/E multiple and peer stocks like Mondelez (-20%) and Nestle (-11%) have also faced pressure in that period. Analyst estimates are holding stable for FY25 adj. EBIT of CHF792m (+13%) on a 6.1% margin (-70bps). That would be on flat revenue trends (as guided to).
FY FCF estimates have seen more pressure now at negative CHF550m and are directly correlated with the rising inventory costs on raw Cocoa prices. Positively part of the inventory at higher prices will be considered "readily marketable" in that they can be sold on the exchange (at end of August CHF2.7b/CHF5.6b in inventory was RMI). Excluding the RMI, it currently has a debt load of CHF3.8b and is running leverage at 5.5x/6.9x (net/gross).
1Q (3m to Nov) results come next Wednesday (22nd) at 7:30am London.