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Few names holding in the green and bucking the SXXP's -2.5% sell-off;

CONSUMER CYCLICALS
  • Haleon +0.9%; We have long liked the 30s but it's had a 20bp rally in this month and we see it closer to FV here. 2Q results the other day were firm and in-line with expectations; growth of +3.5% (volumes -0.8%) and a adj. EBIT margin of 22.7%. FY guidance left unch for organic +4-6% growth while EBIT growth is expected in HSD - firm numbers for a co still targeting deleveraging (from net 2.9x at June).
  • Reckitt +1%; Despite the lack of any rating pressure, caution heading in while overhanging risk from lawsuits remain. It is reducing scale considerable through asset sales which on the unch BS policy leaves it weaker on fundamentals (our view).
  • Diageo flat; Coming off post-earnings lows, caution on spirit players Pernod and Diageo which seem to be facing more volume pressure than brewers. Unrated David Campari 27s seem to be getting the treatment today; +18bps and well wide of both now. It is a higher net 3.5x levered (Diageo net 3x, Pernod net 3.3x), lower adj. EBIT margin at 23.6% (Diageo 29.6%, Pernod 32.5%) and is the smallest in scale at €3b in sales (Diageo €19b, Pernod €12b). This is well priced on the 27s that trade at on a 60bp discount to both. We are still cautions on seeing this as significant value given 1) co is guiding to margin pressure this year and could add to gap vs. peers 2) discount is still lower vs. historical levels though some of that will be reduced on roll-down into 3yr now 3) small scale with weak FCF/debt cover. Adding to that FCF seems to be used up in sizeable capex with excess into dividends. 4) lack of ratings may reduce pressure to maintain BS shape.
  • Sodexo flat; perennially tight & dislocated curve.
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