CONSUMER CYCLICALS
- Kering & Burberry equities are bid on China stimulus. Good macro may not be the rising tide that lifts all boats when it comes to luxury.
- Flutter begins a $5b buyback only adding to our doubts on if it takes its leverage target seriously. We are more neutral on the 29s now and still expect supply which may come with a NIC.
- Air-France equities reverse back to mid-year levels on a broker upgrade. The drivers seem to be recent industry-wide tailwinds; we encourage caution ahead of earnings.
- Rentokil equities go bid as activist investor Nelson Peltz gets his foot in the door with 1-board set. We see it as a slight credit positive for the high cash px lines (others bid in on CoC hopes). That view in part is based on his history of targeting splits and cost cutting over acquisitions, see here.
- Air-Baltic CEO has another interview but refuses to disclose IPO details. We encourage investors to balance the likely tailwinds from it with still poor operating performance.
- PVH credit widens after China drags the co into trade wars. It has had issues (from a ESG perspective) on this before and signs are it has diversified the supply chain. Still we sympathise with the moves and struggle to see the positive catalyst ahead on otherwise unexciting earnings guidance.
- Burberry a revisit to fundamentals as sterling 30s approach 3% over benchmark.
- Campari 27s trade wide despite firm fundamentals of recent. Unrated discount may be the driver.
- Woolworths faces the potential of sizeable ACCC fines on misleading pricing. This comes ahead of the regulators well-anticipated results on supplier relations. Equities down only single-digits is encouraging to see but please note this will be a drawn out headline issue.
- Pluxee and Edenred continue to face broker cuts. Pluxee is our focus on RV value but investors should not ignore any equity analyst concerns.
- DHL adds it is targeting BBB+ to A- ratings vs. the current A-flat rating at its’ CMD day. We see a combination of equity-payouts and potential M&A moving it down. The German development bank reducing its ownership to 17% means it is no longer a government related issuer at Moody’s – yet curve continues to trade perennially tight.
- Auchan, ITM and Casino enter a pricing alliance as the former two have flagged. It is untested and a history of a lack of reporting detail leaves us cautious for now.
- Diageo provides a trading update ahead of the AGM leaving its FY guidance unchanged.
Event Driven Movers
- LVMH takes a stake in Moncler. The strategy behind the acquisition likely does not bode well for hopes it will come save Burberry.
- Primo Waters receives regulatory approvals for its merger with BlueTriton. Management comments at the time (see here) were indicative of navigating around bond covenant protections.
- Sodexo emerges as the second French co to bid for a US company this month. The est. €17b transaction could finally see Sodexo supply (bonds currently locked away by ECB). Aramark equities are not confident and regulator approvals could be an issue.
Primary (fundamentals linked, levels below)
- Priced: APCOA Parking, Bunzl, InterContinental, Kesko
Rating Actions
- Dometic (Ba2 Neg/BB- Stable); Moody’s moves to negative outlook after co gave rough Q3 prelim numbers last week. The rating move and levels on the 28s are a cautionary tale for IG investors in Whirlpool and Electrolux.
- Suedzucker (Baa2 Stable/BBB Neg); S&P moves to negative outlook as we expected after a rough earnings cut last week. Worth noting earnings volatility is this commodity exposed co.
- Adecco (Baa1 Stable/BBB+ Neg); Moody’s affirms with stable outlook ahead of earnings in 1-month. Leverage is already in downgrade territory and earnings lacklustre. We encourage caution.
- Flutter (Ba1/BBB- Pos/BBB); Moody’s affirms it following the $2.95b spending spree. We are more interested to see if S&P stays on positive outlook despite trending above target leverage.
- Rentokil (NR/BBB/BBB; Stable); Fitch stays put on stable after profit warning earlier this month which shook equities. We flagged it had headroom on leverage at S&P but are surprised to that Fitch has it in downgrade threshold.
- Deutsche Bahn (Aa1/AA- Pos/AA+); S&P affirms it after the €14.3b Schenker sale to DSV. S&P sees the transaction as credit positive while we firmly see it as credit negative. Ultimately raters thoughts are more important than fundamentals for the govvie uplifted co.
- Coty (Ba2 Pos/BBB- Stable/BBB- Stable); Fitch affirms it at BBB- Stable after the collateral fell away on IG ratings (most secured bonds move to unsecured). Moody’s may downgrade it on that but would be a technicality for fundamentals given reversion clause.
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