May 09, 2024 15:15 GMT
Tapestry (TPR; Baa2, BBB+; double Neg) 3Q24 Earnings Call (3m ending March)
CONSUMER CYCLICALS
Our screens are unch; €27/31s rich & €25s cheap. Capri Q4/FY earnings later this month worth keeping an eye on.
- Nothing in earnings call that indicates any change in co's confidence to close Capri deal, leverage target of gross 2.5x within 2yrs of close was reiterated.
- For now we continue to price based on Capri equities - the most liquid measure of the probability of success & a effective hedge/arb if drastically different to bonds. We still see it pricing a only ~30% chance of closing.
- Capri FY24 earnings will come this month - arguably more relevant for TPR lines given 1) continuing poor performance may loosen TPR's resolve to close the deal (see LVMH on Tiffany acquisition in '19 a example) & 2) it may move standalone FV of capri equities - we are using current EPS forecast to back out the 30% probability priced.
- If equities move in-line with EPS revisions it won't change anything for us but if there is a skewed reaction - e.g. weak earnings seeing M&A arb. longs exit - it could start screening opps against bonds - e.g. as a hedge for bond shorts.
- As mentioned mids on €27/29s indicate bond investors already pricing a lot more optimism on deal close than equities - though it hard to pinpoint exactly how much as it depends on if investors are looking for excess returns or happy with anything that avoids total (net of carry) losses.
- Final aside, we are pricing to worst case of September call (when court proceedings begin) - latest is Feb 10 2025 before call is enforced - though co may attempt to negotiate that with bondholders (both benefit) if it overruns the date.
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