Burberry (Baa2, NR) Updates into close

£30s +14bps

• Reuters has done up a piece on the new CEO, Josh Schulman (linked below). Tapestry bond holders may be familiar with him (CEO of Coach from 2017-20); regardless it's fuel for a equity story for now. Call today played down any radical changes.
• Stock is -16% and part of that will be the dividend suspension (c6% yield heading in). Surprised by the move given mgmt returned €635m (most in buybacks) from mere £63m in FCF last year - we thought it would continue giving the stock CPR (at 10yr lows).

• It carried £1.8b (including new 30s) in gross debt (£1.2b in leases and £600m in bonds). Moody's downgrade threshold is "trending above" 2.5x which implies EBTIDA >£720m and looks very unlikely now (consensus at low £600m and could see that move lower).
• It could also downgrade on "trading weakening further" without leverage uptick.
• We see it having blown both; leverage likely >3x by year end, consensus EBIT is down -10% since Moody's commented in April. Still Moody's language after FY24 results and rough 1H25 outlook were surprisingly positive. New 30s has always priced away from Baa2 ratings so even if it says put it won't be enough to bring it in.

• B&M's trading update comes tomorrow. The up and coming UK discount retailer's 28s has been a value screen for us. If results don't flag red we see no reason for investors (particularly given current macro and China climate) to be extending into Burberry 30s and giving up 25bps in the process.