Suedzuker (SZUGR Snr; Baa2 Stable/BBB Neg) S&P moves to neg. outlook - follow up
Perps now Ba3 Stable/BB- Neg (notched -4)
Based on the FY guidance Suedz gave (-55%yoy for FY EBITDA), S&P has leverage at 4.3x-4.5x to end this year (we had gross at 4.6x, net 4.1x). It flags uncertainty on earnings outside after FY25/ending Feb but has faith in co implementing "cost and cash flow containment measures" - looks like co has told S&P measures will be coming to preserve the BS.
- As we said worth watching WC and Capex in upcoming earnings - S&P expects former to be positive on reduced inventories and capital optimisation. It notes co will lock in sugar prices in October for the year ahead giving some certainty to work with for the year ahead.
- Expects margins to eventually recovery at group level; from current FY guidance for 6.2% to 8.5-9%. Sees driver as lower sugar prices eventually shifting to lower production costs as well.
- Re. downgrade the leverage threshold is 3x but it has noted it is prone to move before the full 1-2yr runway period if nonsugar segments are weak (current guidance implies together they will largely be flat yoy - on EBTIDA) and/or cost/cash flow saving is not effective.
Worth keeping in mind that this volatility is in the nature of Suedz. It continues to mention Ukraine being allowed to import without EU's hefty tariff's as a key headwind. We'd only point out what S&P has also mentioned today; the tariff free quota of 265k tons was used up by May itself (the quota was set-up after much protest from local operators). Instead the better weather conditions seem to be contributing more (+1.2m tons) to the yoy supply pickup (i.e. not one-off volatility). Adding to that we'd flag sugar is one of the many commodities it is exposed to - but granted is the largest at ~half of group earnings.
On RV;
- €27s are at Z+100/B+140 - no firm view but we expect Moody's to comment as well (yet to). Main member 5Y CDS is at +80 and may look cheap in comparison there but as we have noted before it issued the 27s in late '22 on 1-notch lower ratings but a -60bp basis. Front maturity is in Nov '25 - refi for that likely next hope for supply/duration further out.
- On perp's reminder it is well past the first call in 2015, it didn't show much interest in refi-ing it even when it was rolling over peak resets late last year and still gets 50% equity treatment at the raters and full on co's accounting.