September 24, 2024 13:12 GMT
RTOLN; NR/BBB/BBB; Stable) Fitch stays put at BBB Stable
CONSUMER CYCLICALS
Fitch has stayed unch after a profit warning earlier this month which was not digested well by markets - they had been bid up on PE and activist hopes. It has noted US underperformance (which was the driver of guidance cut) and the fact it makes up 58% of EBIT now but it seems to have faith in the co unlocking synergies (re. US operator/Terminix acquisition in late '22) and turning back into volume growth next year. As we said no FY25 guidance yet, headroom at S&P for ratings but based on below it is in downgrade threshold at Fitch - a tad surprising given it tends to be the more lenient.
- Fitch has leverage moving to 2.9x this year before falling to 2.8x next year - downgrade threshold is sustained levels above 2.8x.
- For reference company targeted net 2-2.5x is eqv. to Fitch's 2.2-2.7x. Co is currently reporting 2.8x (fitch eqv. 3x) and has said it will stay there for this year (vs. previously will move lower guidance).
- As is typical with raters it has assumed "no major acquisitions" in near future. Given continued investor focus/concern on if the $6.7b Terminix acquisition in 2022 was the right move, we would echo that assumption.
3Q results come on the 17th of Oct. On RV;-
- Please note legacy and low cash px €24/26/28s are the only three with 1.25% coupon step-ups on any rater moving into HY. They are still holding onto some pricing of CoC (again requires HY rating - rumours were on PE).
- The unaffected by above €27/30s are starting to screen some value here but we are cautious ahead of earnings. As we said before we already know trading conditions up to the profit warning were weak - it only leaves a ~month for any turnaround (i.e. good news) to be carried over to any guidance issued at earnings.
- £32s don't trade far off the Tesco curve - we are not seeing much value there.
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