Consumer & Transport: Week in Review
WTD: €IG -1 vs. staples +1 and cyclicals unch
Otto proved that not all unrated co's can pull off the success Fraport had 2 weeks ago. To add offence, Fraport new 32s are now -23bps inside where it priced (came flat to our FV). Perhaps German retail money (both 1k denominated) would've given Otto the same reception for its 6% (Z+311) yield but for now that question is left unanswered. International Workplace in RE is extending that theme to even single (and perhaps tactical) Fitch ratings won't cut it (6Y BBB pricing at +388). We've linked the end of our Otto trail from Thursday below, follow the thread if you’re interested but the summary (in our eyes) is it was a troubled and complex amalgamation of businesses, most loss-making and with little details on how a turnaround would be executed.
In Macro we had US May nominal retail sales at +0.4% MoM for the key control group reaffirming the expected re-bound. But it may not be good news for 2Q earnings; April was revised down from -0.3% to -0.4% and March from +1% to +0.9%. Our Economist notes control group is running at 3.1%yoy vs. inflation at 3.3%, implying real declines. Volatile but 'real' UK retail sales (ex. fuel) also gave a rebound up 2.9% MoM in May and saw positive revision from -2% to -1.4% to April.
Plenty of action in HY primary, though similar to IG primary (below), nothing jumped at us for value. Ongoing activity after last week's sell-off is perhaps reflection both issuers & investors being more focused on yields than the price of risk. €BB spreads have come in 8bps since last week’s peak but still +20 wide of pre-sell-off levels. Netting out the strong rates rally from last week leaves yields moving a muter +6bps.
After IG cheap views outperformed last week, they have been muter this week. HY pared back losses ex. Elo that continue moving wider. Only change was the addition of the Haleon 30s (Z+83) - it's moved circa -4bps this week. We were torn on if we remove the new Elo28s now at Z+326. 1H earnings come in a month (25th of July) which leaves only 8bps of duration adj. carry protection for spread moves on earnings day. But the line still sits tad above the curve and 4Y basis against it is at -85bps (Elo is Xover member) - both enough for us to keep the view. Other pieces that may be of interest from this week below;
- After TenneT is Essity the next short? We are not so sure and would exercise caution
- Equity analyst are torn on deal closing, Capri equities are our barometer and on that caution with carry fading
- Otto deal pulled; victim of market or itself?
- Carrefour responds to French ministry fines
- Birkenstock’s S&P upgrade does not move us off the side-lines
- Cheap views through this week & last week on performance