Kellanova Curve May Offer Little Value on Earnings Beat; WOW 28's Look Cheap

Kellanova {K US Equity +4%} (Baa2 S, BBB Neg, BBB S); Strong beat on 4Q driven by volumes & margin, FY24 guidance affirmed incl. +3% organic rev. growth (c+2.8%) & ~$1b in FCF (c$1.2b); €25's/29's unch; WOWAU 28's look cheap

Kellanova is parent of brands including Pringles, Nutri-Grain & Separate to the North America Cereal Business WK Kellogg {KLG US Equity +1.4%} after their split last year (took effect in the reported/4Q) - public credit remains/only under Kellanova/K.

Headline beat was +$100m at $3.2b and saw organic revenue growth across all regions beat - seems price/mix was a drag vs. consensus but volumes made up for it. Further down gross margins +40bp beat at 33.9%. Net debt was down from $6.3b to $5.6b over the year, net debt to trailing EBTIDA below target of 3* (management on earnings call).

We don't have much visibility on why S&P affirmed it at BBB but left on Neg. Outlook in late September but regardless see limited value & better opp’s in the space.

Shorter Woolworths (Single) Nov 28’s (Baa2 Stable, BBB Stable) – 1 of 2 Main Australian Grocery (& clothing) retailer (B&M eqv) - i.e. a defensive – gives +30bps above Kellanova’s May 29’s – WOW's have traded tighter (mid-last yr) with vol between the two driven by the latter despite no rating changes.

Leverage for WOW in FY23 was 2.6* (down from 3.2* in '22) & only has $400m in maturities this yr. BVAL b/a is only 8bps wide, see value in it at G+153/4.8$/€85.3.