CONSUMER STAPLES
- S&P finally moving off IG in a well overdue move. Perhaps reflecting that it was a 2-notch downgrade and has been left on negative outlook.
- Sees FY24 leverage at 5.1x (vs. prev. 4.4x) and the path for earnings after that as "unclear" after "several material earnings misses over the past few years".
- It's highlighting well covered themes; core retail pharmacy business facing industry reimbursement pressures and weaker consumer which it sees moving EBITDA margins down 100bps to 5%. It flags the front-loaded maturity profile but looks like co has given it any extra information for it. Notes Boots UK no longer tabled for sale and the stepping down of Boots CEO. Also notes VillageMD's $12.4b impairment charge this year and continued drag from it on group profitability.
- Few positives it noted was scale ($140b in sales) and past asset sales($2.1b from wholesaler stake Cencora in June) to reduced debt (down from $10.6b to $7.4 in a year). Nothing new from it on store closures.
- As we flagged other day, we are starting to see value on RV with €26s (we saw as rich heading into earnings)...but large uncertainties remain and S&P noted above this co has a bad history now of communication vs. delivery. On any sizeable asset sales (likely to head to BS) we (may) be more motivated to firm up that view. Last note from us here.
Moves since earnings (27th June);
- £25s +10
- $26s +70
- €26s +110
- $30s +140
- $44s +50
- Equities -30%, CDS +130
242 words