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Dufry (now Avolta) (DUFNSW; Ba2, BB+; S) Cheap view on €27s

CONSUMER CYCLICALS

Cheap view on the €27s at Z+132/OAS+152/B+184 pricing to maturity (2% cpn).

  • Curve has moved wider and steepened recently - driver unclear to us - taking the new 31s back to pricing levels in April at MS+205 (OAS+186 now).
  • The curve is steep; parallel to distressed VFC. That's despite 1) clear financial policies including recent history of deleveraging toward target and 2) expected organic growth in MSD. But counter is this is still a travel exposed retailer running HSD EBITDA margins. 27s traded as low as €75/Z+700 during covid and mid 2022 for e.g. of that beta.
  • Hence we prefer shorter-duration 27s for now. For longer duration travel exposure we don't mind the equal rated new Finnair29s (caution to scale risk to single carrier/country risk) that has government ownership/support and trades north of it at Z+218.
  • We don't expect a revisit to primary markets anytime soon; the new €500m 31s had UoP of paying down the Oct €800m 24s. It tendered ~half of it down, will use proceeds + cash when it rolls off is indication it gave then. We don't rule out supply next year with €600m across revolvers/TL's coming due.
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