Consumer & Transport: Week in Review

Macro may be echoing some of the read we are getting from company earnings on US vs. Europe divergences; US June control group nominal retail sales +0.9% MoM (c+0.2%, prev +0.4%) while UK's real measure was a weaker -1.5% ex. fuel (c-0.5%, prev. +2.9%). As always, our economists caution against too much read-through on the noisy monthly prints (particularly on nominal vs. real comparisons) and regardless our focus, alongside market vol and opportunities, stays on earnings. Movers this week were Burberry in sterling – sentiment which also hit Kering and LVMH in local markets - WBA 26s, Reckitt (earnings ahead on Wednesday) and Tesco (confusingly).

Earnings this week

• Burberry (Baa2/NR) saw double digit falls in nearly all regions. Board dumped the CEO and cut the dividend in reaction. It will likely hold onto IG ratings (Moody's was kind to it even after last year’s 30% fall in EBIT). We see little value in the line given 1) any turnaround taking time, 2) still tough macro environment and 3) spread pickup into shorter B&Ms (value retailer).
• B&M (Ba1/BB+) saw LFL fall in its core UK segment but mgmt downplayed it saying saying margins and cashflow fared better. We continue to see value in the 28s.
• Tesco (Baa3/BBB-) continues market share gains in the UK.
• Richemont(NR/A+) impressive results in the face of peers, though China remains weak for everyone.
• Adidas (A3 Neg/A- Neg) more upgrades for the perennially tight curve. Uncertain if it will refi the upcoming Sept line, ratings should be stabilised.
• Gatwick (Baa2 Pos/BBB/BBB+) owner Vinci reports Gatwick traffic up +5.1% in Q2 and now +7.7% YTD - firm numbers but still 10% shy of pre-covid 2019 levels.
• Aerports de Paris (NR/A-/BBB+) June Paris traffic was weaker than group - perhaps on Olympics drag. Air-France earnings next week will give full read.
• Fnac Darty (NR/BB+ Neg/BB+) gives flat 1H results and backloads FY guidance (some seasonal) to 2H. 29s would be value if it can show some consistent growth.
• Henkel (A2/A) raises FY guidance again. Perennially tight curve; hard to see supply unless on M&A.
• Finnair (NR/BB+) FY guidance is rough at -21% fall in EBIT but still profitable and looks controlled on macro and capacity. We still see value in 29s.
• Electrolux (NR/BBB Neg) finally saw growth and but driven by gains in its smallest LATAM segment. Cash looks tight, S&P has been very patient in IG with this name.
• Manpower (Baa1/BBB) small fall in headline and margin deleveraging. Guiding to softening macro conditions but firmer margins. We'd be cautious on 27s that look well bid in at Z+40.
• IDS/Royal Mail (NR/BBB Neg) firm results helped by UK election mail. We continue to see value in the 28s paired with the 26s as a hedge on HY ratings.
• Essity (Baa1/BBB+) as expected no updates on EoD (enabling par-call) dispute with bondholders - which means latter still has not given formal notice. Unclear on why the holdup.
• Evoke, previously 888 (B1 Neg/B/BB-) only a trading update so no cash metrics. We will need to see progress on the 7-turn leverage before we get constructive on the name; £30s look flat vs. €27s.

Rating actions this week

• Gatwick Airport Finance (Secured; Ba3 Pos/BB) Fitch upgrade to BB reinstating 2-notch subordination to ring fenced GATAIR. Single £26s give some width at 6%/T+200.
• TAP Air Portugal (Ba3/BB-) Moody's upgrade to Ba3. No uplift unlike S&P's 1-notch in the face of expected privatisation. Single Dec 24 line coming up.
• Rekeep (Secured B3 Neg/B Neg) Moody's moves to outlook neg. as asset sales remain uncertain. Name not under coverage right now.

Primary this week

• ITM Entreprises (#3 French Grocer); €300m 5Y (unrated, unsecured, opco) at 5.75%/MS+295 (25bp NIC). Lack of detail on financials of certain segments made it had for us to take a firm view. on the co.
• Afflelou; €560m 5NC2 Secured (B2/B/B+) at 6% (eqv. MS+330) - impressive pricing from the mainly prescription glasses retailer - leverage in the 4-handle and double-digit EBITDA margins may have helped investors look past scale and narrow focus.
• Sani/Ikos; €350m 6NC2 Secured (Caa2/NR/B-) at 7.25% (eqv. MS+445) - we only see two other CCC-linked deals this year.

High-Beta Earnings next week (last notes linked)

• Kering (NR/A-) 1H results on Wednesday Evening; expected to be rough, we struggle to see value in the curve. It has been widening through this week.
• Elo/Auchan (NR/BB+) 1H results on Thursday Morning; we see a lot of downside priced in. We will follow up with more detail next week.
• Air France-KLM (NR/BB+/BBB-) 1H results on Thursday Morning; expected to be rough, curve prices some of this in but we struggle to see where positive catalyst will come from.
• Tobacco; Phillip Morris (A2/A-) on Tuesday (US pre-market) and BAT (Baa2/BBB+) on Thursday morning; Look at how Illicit vapes are impacting non-combustibles growth by region. For BAT looking at traditional combustibles growth for read through to heavier exposed Altria and Imperial.

Ongoing M&A Risk

• IDS/Royal Mail (NR/BBB Neg); EP Group’s private takeout at £370/share; 81% prob. priced of closing deal and letting EP load debt onto the BS.
• Tapestry (Baa2/BBB; D Neg); Capri acquisition at $57/share; 38% prob. priced of closing deal and removing 101 SMR risk.
• Carlsberg (Baa1/NR/BBB+ CW Neg); Britvic board agrees to £13.15 buyout from Carlsberg; ~85% prob. priced of reg. approvals leading to likely 1-notch downgrade and ~£1.8b in supply on bridge loans being refi'd.
• DSV (A3/A-); Finalist bidder for Deutsche Bahn's (Aa1/AA-) logistics unit, DB Schenker, at reported valuations ~€14b.
• Whirlpool (baa2/BBB-); Unconfirmed rumours emerged Robert Bosch (NR/A/A) was considering buying it in late June. Equities +22% since, €bonds hugging RBOSGR lines in the hopes of a composite rating uplift (CoC requires junk ratings).
• PostNL (NR/BBB Neg): UPS regional CEO gives open to answer to whether PostNL is a target. Equities trading at elevated P/E, Daniel Křetínský (IDS/Royal Mail bidder) is also a potential buyer with a 30% stake already.

Pending Asset Sales

• VFC (Baa3/BBB- D Neg); Supreme and Packs have been rumoured, former done this week for $1.5b cash.
• Walgreen Boots (B1/BBB- Neg); selling down the VillageMD stake to help lower leverage and to address the $6b due over next 2 years is expected now.
• Mobico (Baa3 Neg/BBB-); has tabled sale of North American school bus business.