Kering (NR, A- Stable) {KER FP Equity}

A expected €2.2b in acquisitions this year seems to have pushed S&P downgrade yesterday. It hasn't extended the 1Q guidance warning of -10% decline in sales to further down this year (in line with equity analyst). Continued cash use (namely property acquisitions) are credit negative given little headroom on leverage here to BBB+ ratings - company seems to have guided to S&P of opposite - i.e. disposals ahead. Kering reports 1Q results next week.

• S&P hasn't extended Gucci underperformance beyond 1H this year which is in line with equity analyst reports we saw after the weak guidance for 1Q (-10%yoy for group & -20%yoy for Gucci in Q1). It sees FY24 comparable revenue stable to slightly negative yoy which seems tad pessimistic/leaves room vs. current consensus.
• Its projecting EBITDA margin to fall 200-250bps on rising expenses in SG&A & mix away from higher margin Gucci. It's adjusted EBITDA at €6-6.2b this year (vs. €6.5b last year) does seem optimistic vs sparse consensus (x5) which is looking at sharper 400bp fall in margins - cleaner FCF consensus (x16) at €3.0b/€3.5b in FY24/25 look in line with S&P expectations for FOCF >€3b.
• Main negative on BS seems to be discretionary property purchases of €1.3b in Milan & €900m in NYC. It sees debt increasing from €14.3b to €15.5-€16b this year. Importantly it doesn't see further transactions & notes this is a risk of ratings - company seems to have indicated it will dispose some stakes. Expects leverage above 2.5x at year-end before improving to 2.2-2.4x; downgrade is on >2.5x sustained.
• On dividends its assumed continuing 50% pay-out (vs. net income) and has assumed no buybacks (co didn't do any last year).