EU CONSUMER STAPLES: B&M; S&P moves to neg. outlook (x2)
Mar-19 11:34
(BMELN; Ba1 Stable/BB+ Neg now)
- S&P Still notes the rating headroom but sees the 3 straight quarters of falling LFL sales as enough for negative outlook. As we said it is disappointing it cannot perform in this environment (as a discount). The now departed CEO was painting that as 'price positioning' that would yield results in the future (yet didn't to start this year).
- It otherwise has not flagged much concern in numbers - as we have said before co does relatively impressive margins and S&P has FOCF after leases of £300m this year and next. It has leverage ~ net 2.5x at September - we see FY/March around 2.8x. Reminder despite falling LFL sales, revenue will still see positive growth on new store openings.
- S&P does note uncertainty on new CEO's financial policy - co currently targets net ex. leases of 1.0-1.5x (= S&P net 2.5-3.0x).
- This only requires maintenance of current BS - excess cash after funding growth projects is already sent to equity holders. S&P is assuming £150-160m in dividends + £150m in buybacks or special divvy's to leave largely breakeven cash flows ahead.
- Equities are -22% YTD which may motivate more lax policy - countering that equities have a history of bouncing from levels here - sales performance likely in driver seat.
Next catalyst will be who the replacement CEO is. FY25 (to March) pre-lim results are also ahead at the end of April. Levels (£28/30/31s) already price bad news, we have no firm view here. We do not expect refi supply.
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BUNDS: /SWAPS: ASWs Unwind Friday's Widening On Defense Spending Prospects
Feb-17 11:31
Long-end German ASWs have fully reversed Friday’s widening, with outright yields increasing on the prospect of increased European defence spending in the event of a US-brokered peace deal between Russia and Ukraine.
- Buxl ASW vs. 3-month Euribor is ~3bps tighter today at -39bps, after widening to a multi-week high of -34.5bps on Friday morning. Bund ASW is also 2.5bps tighter, with more modest movements seen at the short-end.
- Last week’s widening was seemingly a combination of US spread spillover and concentrated short positioning in German long-end spreads. Reduced expectations for a long-end Bund syndication ahead of the Feb 23 German election may have also played a role.
- Although we pencil in a 30-year Bund syndication for this week, our conviction is waning ahead of the election. We wouldn’t rule out a mandate announcement for today, with a transaction tomorrow, but the later in the week we go the less likely the transaction would be.
- The prospect of debt brake reform following the election result (the probability of which depends on the eventual composition of the Bundestag) presents a key near-term risk to ASWs, even if the implementation of any reforms would likely take some time. MNI’s full German election preview will be released early this week.
- On a medium/longer-term basis, fundamentals point to further tightening of ASWs, with the ECB’s balance sheet run-off increasing free-float of German paper and easing concerns around collateral availability.
Figure 1: German ASWs
OPTIONS: Expiries for Feb17 NY cut 1000ET (Source DTCC)
Feb-17 11:29
- EUR/USD: $1.0500(E3.6bln)
- USD/JPY: Y148.20($986mln), Y152.00-20($1.1bln)
- AUD/USD: $0.6285-00(A$515mln)
CHINA: Pre-Session NPC Meeting Set for February 24-25
Feb-17 11:23
- State media announces a fresh National People's Congress meeting for February 24 - 25th.
- Note that this new meeting comes just ahead of the third annual session in Beijing, confirmed for March 5th. At this session, lawmakers are expected to review the government's work report and approach to implementing national plans on economic and social development - as well as drafting strategies for 2025.
- As such, it's likely this new meeting announcement is for agenda-setting and coordinating the finer details of for the annual session.
