CONSUMER STAPLES
- CoC at par, 3m par call, negative pledge
- Dreyfus is part of the 'ABCD' global food producers. The only other that issues in our markets is Cargill; 30s rated A2/A and trading at +75. For that reason we have also included raw commod's exposed Suedzucker - who is facing a tough time on its near half exposure to sugar prices (~effective ceiling).
- AB and C issue in $s and all trade tight to each other; lowest rated is Bunge (Baa1/A-) who's 7Y is +6bps above Cargill.
- Cargill priced a €500m 7Y last April at MS+83. Its trading at Z+75 now.
- It is coming wide but we will refrain from a firm view given multiple moving parts and somewhat lack of detailed reporting in roadshow - which leaves us still getting up to speed with it. Despite being private it does publicly result half-yearly results - so we will be able to cover it.
- The existing 28s did trade with high-beta (up to Z+250 as 6Y risk) - but that was back in 2022 when it was on BBB- ratings.
- For now we spread it conservatively to Cargill and leave FV at Z+100.
- Note it is a very low margin (4% on EBITDA) despite the scale $50-60b. Peers are similar but we see public ADM running a high 6% margin in recent years and Bunge a volatile 4-7% margin. It does not clearly breakdown each division's performance (vertically integrated co) - which we would like to have seen.
- It is coming off a June S&P upgrade after BS leverage remained low (S&P had it at 0.4x). Large headroom there to threshold 2.25x. We could see continued upgrades if it successful diversifies into downstream processing of food consumer products and ingredients (higher margin) vs. keeping a reliance on trading and processing grains/oilseeds.
- $7.8b in total debt which is "mostly unsecured". $1.25b in cash leaves net debt ~$6.5b. The $4.3b in long-term debt is well spread out (<$1b due/yr). on LTM EBITDA of $2.1b it is 3.7x/3.1x levered.
- $8.2b in WC. As is normal with commodity co's ~82% of inventories ($5.4b) is counted as readily marketable inventories that can be converted to cash. Against this net debt is smaller ~$1.1b which is what co (and raters) uses for leverage metrics (reported 1H at net 0.5x).
- Re. cash flows; maintenance capex looks small (1H runs $200-300m) with excess cash going to dividends ($500m/half). S&P expects Capex to pick up pace to $1-1.2b/yr over 2024 and 2025. It notes this is discretionary and sees it being able to cut to $200-300m/yr if market conditions are adverse.
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