Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
Margin recovery has been tempered in FY guidance and will leave it's yoy falls looking stark against Electrolux's profit recovery - though we are still lacking firm signs on the latter. Both look a tad rich given fundamentals, particularly if profitability fails to recover to pre-covid levels. We reiterate our view that a Bosch bid looks closer to 0% prob. now (removing the potential of a 4-notch rating uplift). Current pricing of a Bosch bid;
- Equities; 25% (assuming a 30% takeover premium)
- €28s; 80%
- €27s; 88%
The Euro lines moving tighter since Bosch made comments indicative of no-more M&A is confusing to us to say the least...equities have pared more than half their gains since and $29s are -14 tighter vs. peak -22.
We see over 20bps of upside for shorts on the rumoured risk being removed. Reminder this is not a par call/CoC situation (requires junk ratings); i.e. downside is limited to Bosch curve (~circa 2-5bps from here).
- 2Q headline revenues at €4b (-17%) was in-line with expectations but adj. EBIT at $212m (-40%) is a miss and comes in at a 5.3% margin (-200bps yoy).
- It's broken down EBIT margin decline as -3% from Price/Mix, -0.5% from SG&A and -0.25% from currency. It somewhat offset those with +1% from cost savings and +0.75% from divesting its European business (small 25% stake remaining in a JV).
- By region NA (64% of sales this qtr) was -6%, LATAM (22%) +11%, Asia (8.5%) +20% and rest (5%) +11%. Margin movers were NA that fell 3.8ppts yoy to 6.3% and Asia that rose +2.7ppt to 6.2%. LATAM is running 5.8% margin. Reminder before its divestiture EMEA was 20% of sales and struggling to be profitable.
- America's poor performance on headline and margin its blaming on promotional pricing, LATAM strength it tying to market share gains (despite unfavourable pricing/mix) and Asia strength all-around it says was aging market gains in the face of weak pricing/mix.
- FY24 Guidance is very detailed; Headline left unch at $16.9b (flat yoy), margin brought down 80bps to 6% (-90bps yoy) and FCF brought down by $100m to $500m ($366m last year). Consensus was at 6.5% on margins, in-line on FCF and headline.
- Reason for margin revision - higher promotions (dragging on pricing) and lower cost savings. Reason for FCF revision down; lower headline operating cash flows (its actually boosted WC assumptions by +$50m and lowered capex by $50m (total +$100m) to get there).
- Dividend guidance unch at $400m this year, $50m in buybacks done in 1H. Liquidity fine with $1.2b cash on hand.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.