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ISS Global (Baa3 S, BBB S) S&P Upgrade

CONSUMER CYCLICALS
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We don't see much opportunity on the upgrade - 26/27s trades in line with voucher operator Pluxee (NR/BBB+) a curve we like. After earnings we had a cheap for carry/into maturity on the 26s (see below) its unch since at Z+66.

  • One notch upgrade to BBB Stable. We weren't expecting one with leverage holding at mid-point of 2-2.5x target in Q1. Note it will rise temporarily on 1H FCF seasonality when it next reports (mid August).
  • As co flagged, S&P does accept the 5% sales growth it has forecasted will be price driven as co exits unprofitable contracts. But it sees support from a 80bp EBITDA margin expansion to 6.9% in FY24 (FY reporting same as CY). Assumptions in line with consensus co's organic growth guidance.
  • Other assumptions include DKK600m in payments withheld by DTE reversing in '25 (in line with co's guidance), M&A at DKK500m/yr and sizeable pickup in equity returns; dividend pay-out increasing to top end of 20-40% of net income target (consensus well shy of that) & buybacks being boosted from DKK1b this year to DKK1.5b in '25.
  • As we said after earnings "If it refis the Dec €300m outstanding line - may bring some more value/excitement with it." Longest a 27/3y right now.

Q1 Numbers

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We don't see much opportunity on the upgrade - 26/27s trades in line with voucher operator Pluxee (NR/BBB+) a curve we like. After earnings we had a cheap for carry/into maturity on the 26s (see below) its unch since at Z+66.

  • One notch upgrade to BBB Stable. We weren't expecting one with leverage holding at mid-point of 2-2.5x target in Q1. Note it will rise temporarily on 1H FCF seasonality when it next reports (mid August).
  • As co flagged, S&P does accept the 5% sales growth it has forecasted will be price driven as co exits unprofitable contracts. But it sees support from a 80bp EBITDA margin expansion to 6.9% in FY24 (FY reporting same as CY). Assumptions in line with consensus co's organic growth guidance.
  • Other assumptions include DKK600m in payments withheld by DTE reversing in '25 (in line with co's guidance), M&A at DKK500m/yr and sizeable pickup in equity returns; dividend pay-out increasing to top end of 20-40% of net income target (consensus well shy of that) & buybacks being boosted from DKK1b this year to DKK1.5b in '25.
  • As we said after earnings "If it refis the Dec €300m outstanding line - may bring some more value/excitement with it." Longest a 27/3y right now.

Q1 Numbers

Keep reading...Show less