Ontex (B3 Stable, B Neg) Follow Up

Single July 26's mid's are on a one-way move tighter this morning (-30bps, b/a 20bps wide) on the strong earnings beat for the baby & feminine care retailer. Its through Dec tights (on spread) & leaves it at the tightest since issuance in July '21 when it was 2-notches higher at B1/BB - the 3.5% coupon line still below par at €97.

As recap from earlier; FY EBITDA strong beat at €223 vs. c€183, guiding to low single-digit like-for-like revenue growth in FY24 (c has +3%). EBITDA improvement has been cost & volume mix improvement driven - adj. EBITDA margin up 3.5% over the FY to 9.7%.

Leverage fell from 6.4* to 3.3* this yr (consensus was looking for 3.1*) helped by net debt reduction of ~€200m to €665m from the divestment of the Mexican business. Note company leverage at 3.3* excludes Mexican business activities to adj. EBITDA (TTM). Its guiding to leverage below 3* by year-end - consensus had 2.4*.

Hard to see value here for the 26's. Its (again) tighter than Picard Surgeles 26's (the frozen food distributor) rated B3/B stable - might be some discount for Picard's curve as private equity issuer. Still trades at the tight end of B rated consumer names at 4.9%./G+234.

Counter to that is Ontex is now running leverage below B names (index median high 5's vs. BB's 3.0*) though we are comparing across bbg vs. company reported here. Rating agencies may be more cautious - Mexican business sale & leverage improvements were in hand when Moody's downgraded it from B3 to B2 in Nov.