CONSUMER CYCLICALS
We are keeping an eye on HY consumer after yesterday's weakness. We hear Coty (Ba2 Pos/BB+ Pos/BBB-) sellers have been in the market including on the new 27s - a line we saw value in primary. It has been bid well in and we are skewed to see more value in Dufry (Ba2/BB+).
- Coty earnings were bit of non-event with firm FY (to June '25) guidance; LFL sales +6-8%, adj. EBITDA +9-11% on margin expansion of +10-30bps and FCF low to mid $400's (vs. $369m this year). Leverage targets unch; current 3.3x vs. exit this yr at 2.5x and next year at 2x. As we said most deleveraging will come from the continued sell-down in hair care co - Wella - whose value was reported unch (25.8% stake at $1.085b).
- Dufry (now called Avolta) is higher beta, exposed to travel and runs a similar HSD operating margin to both airlines and Coty. Guidance (to Dec) is firm; +5-7% growth and +20-40bps expansion in EBITDA margin (9% last yr). BS in check at net 2.35x vs. target 1.5-2x. Company has demonstrated (like Coty) strong governance on BS post recent M&A. Acquisitions has helped it double in size in under a decade while growing margins.
For reference Coty 27s were issued at +140 in May, +30 wide of Dufry. It is one of the best perfumers in consumer primary this year.
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