CREDIT RESEARCH: Autos / Industrials / Utilities: Week in Review
Earnings: earnings season is getting to the tail end now. Once again, no blow ups emerged this week.
- Evonik - No spread impact. Leverage higher as expected after headwinds last year. Forecasting lower EBITDA than expected, offset by lower capex.
- Thales - No spread impact. Leverage up on M&A and pension transfer. Results were better than expected, particularly FCF.
- Traton - Small positive for spreads. Nice revenue and operating income beat, strong FCF and better than expected forecast.
- Schaeffler - Neutral for spreads. Forecast for 2024 was a little softer. the Vitesco merger set to drive the credit story from here.
- Pirelli - Neutral for spreads. Results and forecasts land close to home.
- Continental – Neutral for spreads. Good numbers, but no real room for upside with tight valuations.
Newsflow: mostly M&A related.
- Engie – looking to sell $1 billion in US renewable assets to reduce debt and fund investments. Eyes on valuations achieved, this will be a significant medium term funding strategy.
- Albemarle – high equity volatility due to cash raising. Cash will go to investments, so no immediate credit impact.
- Iberdrola – Offering ~€2.3bn for the 18.4% of Avangrid it doesn’t already own. Small leverage impact but does demonstrate M&A appetite post recent asset disposal. We could see supply in a tight credit that is vulnerable to a re-rating.
- Mondi - In-principle merger agreement With DS Smith reached. MNDILN spreads have widened ~25bp since the initial offer. SMDSLN 5-15 tighter on the latest news.
Primary: rather quiet with only Transurban and Orano in the market. NIPs remain generally low, although we are seeing some premium for issues > 10y.
Secondary:
Industrials - generally tighter, in a +2/-8 range. Packaging was the volatile subsector with SMSDLN 9 to 18 tighter on the MNDILN news. Meanwhile BERY and VRLAFP finish wider. ENFP lagged after last week’s acquisition. Despite the risk on mood, Miners are unchanged. Airports performed well with HTHROW and ADRIT long end 5+ tighter.
Utils - unchanged overall in a +1/-6 range. ENGIFP outperformed, recouping primary driven weakness last week. IBESM widened 2-4 on M&A.
Autos - broadly unchanged, in a +6/-6 range with SCHAEFF wider post earnings.
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GERMANY: Scholz To Visit China 15-16 Apr-FAZ
(MNI) London - Frankfurter Allgemeine Zeitung (FAZ) reports that Chancellor Olaf Scholz is set to visit China on 15-16 April, according to an invite set to business reps from the Asia-Pacific Committee of German Business. Scholz's trip will mark his first to China since Nov 2022, when he met with President Xi Jinping in Beijing. During that visit Reuters reports that Scholz "pressed Xi to prevail on Russia to end its invasion of Ukraine, saying Beijing had a responsibility as a major power to do so."
- The announcement of Scholz's visit comes as he prepares to travel to Washington, D.C., from 8-9 Feb for talks with President Joe Biden at the White House. The focus of talks is likely to be on the security situation in the Middle East, and the war in Ukraine.
- Scholz's visit could come as part of an effort to repair business relations with China that have come under strain recently. Indeed, neither Finance Minister Christian Lindner nor Economy Minister Robert Habeck have yet visited China, with the former being disinvited at short notice in May 2023.
- In recent weeks a number of headlines have appeared claiming that the German gov't is encouraging firms to 'de-risk' from China, while a survet seen by Reuters claimed that "The proportion of German firms exiting the Chinese market or considering doing so has more than doubled to 9% in the past four years"
CNY: Goldman: Renewed Depreciation Pressures Amid USD Strength & Positive Carry
Goldman Sachs note that “the CNY depreciated against the USD in January, despite some oscillations amidst different announcements of policy support. The DXY rose notably from the late December lows, primarily on solid employment reports and hawkish comments from Fed officials. CNY shorts built up in January on attractive carry returns.”
- “As policymakers actively managed the currency, investors have expressed growing interest in 1) carry trades of CNY shorts against high yielders such as INR, and 2) trade ideas related to active currency management (also attractive carry profiles), such as CNH/CNY basis wideners, pay CNH CCS vs. NDIRS, and pay USD/CNH forward points.”
EQUITIES: Estoxx call spread
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