CONSUMER CYCLICALS
- VFC; We are skewed to see value here for the first time in a year. Please note our view is contingent on seeing Bracken (new CEO) as purposefully under-guiding on the weaker numbers for the next quarter. Vans remains an issue, Bracken paints it as still in clean-up phase with Sun Choe’s impact yet to come.
- LVMH; earnings echo recent peers in a small turn back to growth for US and Europe. Adding to that it is reporting 2025 conditions as firm. Bernard’s praising of US tax cuts and vice versa for French hikes is hardly news given his history.
- Adecco; even equity analyst are starting to voice concerns for balance sheet – always a red-flag. We were clear with our caution in primary (Oct), €31s are widening out but still look exposed if it continues to report poor numbers next month - peer Manpower earnings do not point to a recovery in the sector yet.
- Ryanair; O’Leary is keen to paint continuing capacity constraints in Europe (despite peers guiding to increasing capacity this year). If O’Leary is right, it would be supportive for yields. He continues to (vocally) highlight rising airport tax costs particularly in Germany.
- Rentokil; unscheduled trading update is safe from any red-flags. We have been biased to see value in the high-cash price 27/30s after a PE scare send them wider late last year (was downplayed later). They continue to perform.
- UPS; no rating barrier to the bad-news when it comes to postal cos. The decision to downsize volumes from its largest client, Amazon, should not be ignored for read-through to global parcel market. Expect follow-up.
- Electrolux/Whirlpool; diverging pace of earnings recovery (ELTLX here, WHR here) paired with good/poor governance around balance sheet should help the former continue outperforming. We will circle back on both.
Event driven news
- Walgreen Boots; leaks that a buyout from PE firm Sycamore is “mostly dead” hits equities (-5%) and low cash price bonds (CoC at 101). As we said last week there seems to be no end for bad news with this co. A pause to the (sizeable) dividend hit equities on Friday again – a marginal positive for credit.
- Diageo; denied Bloomberg sourced leaks that the it was considering a sale of Guiness and/or stake in Moet Hennessy. A few days later it announces divestment of Guiness Ghana – perhaps what drove the initial incorrect by mistake. Ghana is negligible, Guiness itself is <16% of group revenues (mainly a spirits co).
- Heathrow; UK Chancellor, Rachel Reeves, backs a third runway in Heathrow as rumoured. Heathrow is levered high but runs sector leading margins on what the airlines have already begun complaining about (high tariffs). According to telegraph Heathrow owners are open to injecting funds – unclear the form this may take. Obstacles for third runway include the London Mayor who may turn to the courts.
- Kering; does the 2nd part of planned property disposals. Earnings remain in the driver seat. Recent bull-flattening and peers reporting firm conditions in US/Europe will leave little room for bad numbers next month.
- Lufthansa; takes a 10% stake in AirBaltic ahead of a potential IPO for €14m. It was always the expected, the size and proceeds from the stake may be seen as underwhelming but it is hard to foresee the benefits the partnership may bring. Air Portugal remains another interesting issuer that is tabled for privatisation (bankers have IAG as front-runner there).
- Carnival; the rising star candidate refinances a $2b 10.375% ‘28 line (through MWC) into a $8NC3 paying 6.125% (-$85m/yr in interest).
Primary
- No issuance, Mandate out for Sterling 7-y from Whitbread (Fitch; BBB) - parent of Premier Inn Hotels (UK/Germany chain).
Rating Action
- Avinor (A1/A+); S&P upgrade to the standalone from BBB- to BBB, 4-notch uplift remains for Norwegian government’s full ownership. Note, Norway itself not a euro issuer – it has a small debt load and instead finances most fiscal spend from oil revenues (triple-A rated).
- Metro AG (NR/BBB- Neg); S&P moves to negative outlook, putting pressure on a name that has traded on a retail (1k denominations) premium. Ample rotations without spread give up for better risk.
- Sodexo (Baa1/BBB+/BBB+; Stable); company reaffirming FY25 guidance (to Aug) for organic growth of +5.5-6.5% and 30-40bp of margin expansion seems to have reassured Moody’s. It has also noted “at least a partial repayment” of the €700-April 25s. The M&A scare triggered sell-off from last year has brought it out of the perennially tight levels to fair.
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