Week in Review - Retailers

Woolworths (Baa2, BBB; S); €28's -33bps, equities -9%

We flagged the Aussie staple as cheap earlier this month and saw mids correct tighter soon after. Unclear what the catalyst was but we did get confirmation mids had moved hence we took the view off last week post FY earnings. Still a name we like but we think its move into fair value now. There was also a surprise early retirement of the CEO (in effect August) with some linking it to the current political/media scrutiny into supermarket pricing - mgmt denied any link and the replacement CEO (internal) seems highly regarded in the market.

VF (Baa3 Neg, BBB- Neg); €26-32's -3-8bps, equities -7%

We saw the VFC curve as cheap post its Q3 sell-off. It has continued rallying since, but equities did not echo that sentiment last week - its back near post-earnings (pre board change announcement) lows - we don't see any moves in FY24 FCF estimates (c$650m vs. company $600m). Near term FCF generation we think is vital for VF given ratings are conditional on $1.75b of debt paydown over next ~year. No news on the 2nd/new board appointment that is expected & Packs business sale remains a key point of uncertainty. S&P played catch up to Moody's post-earnings while latter has not commented on the weak Q3 results - downgrade into HY is a likely risk from Moody's we think. The (bullet) 26's have now tightened 10bps from when we flagged as cheap - we still see value and keep the view unchanged.

Coty (Secured; Ba2 Pos, BB+ Pos, BB+ Pos); €26's -9bps (spread), €28's unch, equities +11%

We flagged 2 weeks ago that both the curve & 26's in particular had over-extended their post-earnings rally - no signs of that reversing last week, 26's continuing to move tighter & in turn steepening ~1yr pick-up to the 28's (the 5.75% workout to first par call date in '27) - it mirrors a similar theme to the $ curve & in both cases the short-end now trades in line with IG names. The only support we see for equities rallying through the week is analyst upgrades - with FCF at $400-500m marginal changes in analyst fcst unlikely to move the needle for rating upgrades/leverage - timing of asset sales more key. We continue to think the Coty curve is rich here.