June 20, 2024 12:53 GMT
Otto (OTTOGR; unrated) 4.3Y FV
CONSUMER CYCLICALS
€250-300m 4.3Y SLB Final yield 6% (eqv. MS+313)
**Books >€250m (including JLM), books close 1:30pm London.
- We will refrain from a FV on this one but final yield is not cheap to us. It may be for someone who understands how the turnaround in earnings will be realised, noting only 2 of the 5 segments are making money right now.
- We are open to catching co's on the down when we have a more clear read on the 'path of how' - and in this case we are not.
- Re. why 6% is not enough for that uncertainty - Elo/Auchan the French supermarket operator (larger at €32b revs, tad lower leverage, similar margins and similarly not making money in core business) is rated BB+ by S&P and trades at 6.1%/Z+321 on its shorter 28s. It reports half yearly, has Xover member CDS (at -50 basis) and has 25% of EBITDA for real-estate which is a high-quality asset base. Net we would MUCH rather take Elo risk here. Note Elo 1H earnings are coming up so we encourage those on the side-lines to wait that out.
- Our view that this is not cheap does not necessarily mean this line will not perform in secondary - its 1k denominated and opens it up to retail money.
Background on Otto from before here.
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