CONSUMER CYCLICALS
- We've had some questions on RV that includes the normal cheap for ratings, $ curve looks tighter etc. As mentioned in preview, curve is priced to BB- ratings. We would note though that local HY consumer/retail space is sparsely populated & many of the names under coverage have firm operating performance/on the rise (see Coty, Dufry).
- For those looking to rotate into safer names without giving up carry, new Finnair 29s (NR/BB+) with government support only gives up 20bps (we've liked it but flag the single airport/country concentration risk).
- On short-end we recommend eyeing RE sector for opp's (Aroundtown e.g.) that still give pickup and are starting to show stabilising valuations (see Dave's notes). Elo/Auchan (private co) does trade wider on 26s in consumer but it is yet to show a turnaround in performance & is unlikely to when it reports 1H results in late July/August. We liked the new 28s on a 57bp NIC and Xover CDS protection (runs sizeable negative basis) - its come in 20bps since.
- Re. US being cheaper - we are not a fan of using XCCY ASW valuations (€29s look tad dislocated/cheap on that) - as e.g. in $'s carnival (B3/BB-) trades 60bps inside VF while in € the 29s sit on the curve (below).
- Finally, we've had some questions on what FY25 FCF guidance (12m to March) means for operating performance. Again co's guidance at $600m includes asset (not brand) sales - we don't have a exact number on latter but in Q3 it said non-core physical assets would amount to $50-100m over next 2-3 qtrs (i.e. we see as small). Regardless it's a disappointing FCF number (down yoy & less than half of pre-covid FCF levels) & when combined with weak 1Q25 colour makes any turnaround hard to see.
Our take; https://marketnews.com/vf-corp-vfc-baa3-neg-bbb-ne...
Equity analyst takes; NSN SDXOBYDWLU68 <GO>
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