Consumer & Transport: Week in Review

We are starting to see pockets of opportunities as earnings settles – airlines our focus this week for that. Rating changes picked up pace after last week’s more controversial names; both the co’s we headlined in the last weekly having governance issues have since rating action - Burberry getting a lenient treatment from Moody’s, Auchan not as lucky with S&P. High-beta earnings next week include VFC and PostNL.

Event Risk Ahead

• VFC(Baa3 Neg/BBB- Neg); Beware 2Q earnings on Tuesday (curve is widening HSD today/since).
• PostNL (NR/BBB Neg); We are eagerly awaiting it and if it surprises us and consensus with solid numbers then it might give us a chance to get constructive on the new 31s.

Notable Earnings

• Dufry (Ba2/BB+); The airport retailer gave solid results and continuing to justify its levels.
• Diageo (A3/A-); We see issues in the spirits segment - ones that spreads seem to not be reacting to.
• Lufthansa(Baa3/BBB-); positives of diversification showing again.
• JDE Peets (Baa3/BBB-); the F&B reject should be given more of a look in by investors.
• Wizz Air(Ba1/NR/BBB- Neg); We heard sellers about and though we do have concerns if co can emerge out of GTF issues with better cost discipline, that does not change our view on seeing some value in €26s.
• Securitas(NR/BBB); Consumer services used to once screen value with Securitas trading at wide end of that. Entire sector looks bid in now, trading flat to even staples.
• State of Tobacco looks firmer than we expected outside US. We will circle back on them.

Event Driven Movers

• Reckitt (A3 Pos/A-) competitor Abbott - who is tied in with it on NEC lawsuits - faces a $495m loss continuing to add to its first case loss.
• Walgreen Boots (B1/BB Neg) asset sales continue to aid in deleveraging.
• IDS (NR/BBB Neg) UK government once again taking a look at Daniel K's ties to Russian gas. Expected timeline is 2-months, we still see value regardless of outcome in the €28s.
• Carlsberg(Baa1/Nr/BBB+ CW Neg); Shopping season for the co and is adding to expected bulk supply.

Primary

• Edenred (NR/A-) 8Y at +112 vs. FV 105 (7bp NIC). We had no firm view given the small NIC
• Stonegate Group (STONPB; Secured B3 Neg/NR/B+) UK pub operator with refi-supply
  • £1.645b 5NC2 Snr Secured fixed at 10.75% (~UKT+700)
  • €470m Snr Secured floater at 3mE+662.5

Rating Actions

• Elo/Auchan (NR/BB Neg); S&P with 1-notch downgrade, negative outlook and a cautionary tone throughout. We value what it has to say on the private and often lacking detailed reporting co.
• Burberry (Baa2 Neg/NR); Moody's moving to neg. outlook which we see as lenient...but apparently new 30s were still caught off-guard (+10bps).
• Kering (NR/A-); S&P willing to ride out a spike in leverage (as earnings falls more than it expected) without even an outlook change. Management's comments around BS (including potential property disposals) likely helping.
• Reckitt (A3 Pos/A-); S&P stays unch and importantly co has confirmed that its capital allocation will remain unch including a net leverage target around 2x. Reminder Reckitt is selling parts of its business and facing NEC bulk litigation risk in the US.
• Prosegur (NR/BBB Neg); S&P moves to negative outlook on leverage holding above thresholds. Trading inside Securitas (NR/BBB) is a tad confusing to us.
• Bunge (Baa1/BBB+ Pos/BBB+ CW Pos); Moody's with 1-notch upgrade to Baa1 Stable for the agri producer. $2b in funding still expected.
• Stonegate (B3 Neg/NR/B+); Fitch moves off credit watch negative as the UK pub operator successfully (though not cheaply) refinances its debt. Moody's meanwhile stayed on negative.
• Ryanair (NR/BBB+/BBB+); affirmed by Fitch at BBB+ Stable and should be no surprise (net cash position, wants to be debt free by '26).
• Compass Group (A2/A); affirmed by S&P At A Stable with comfortable headroom (1.4x vs. 2x).
• Pernod Ricard (Baa1/BBB+/WR); Fitch moves to neg. outlook but also withdraws ratings for commercial reasons.