EU CONSUMER CYCLICALS: Consumer & Transport: Week in Review
Feb-14 15:51
Earnings were interesting on troubles from BAT, Randstad, Kering and even from our favoured Coty. Bonds did not move for any of them - keener to ride this week’s strong compression (vs. Bunds, IG -2.5, HY -7). Two weeks ago, we faced the opposite, and we flagged value on VFC, Carnival 30s and Elis 28s - they are holding firm (-30, -27, -2) vs. index -4 (all against swap). This week we turned to primary for value and for the first time this year. 25-30bp NICs on Barry Callebaut being traded away in two sessions. Earnings slows down next week with only Edenred, Carrefour and ISS of note. First M&A supply for the year will also come with Carlsberg 5-part across €/£ out.
- Randstad faces its 8th straight quarter of revenue falls - and at pace (-6%). Guidance is for that to not change, and it does not bode well for more levered peers, including Adecco. It says the labour market is still “stuck” on low hiring levels and quits. Spain and Italy are the exceptions, US showing signs of turning.
- Coty; equities drop -15% this week adding to a -60% fall from 2024 highs but still trades on forward earnings multiple within historical ranges. 2H sales growth is now for LSD decline and FY EBITDA is guided to flatline. We are not concerned for the short-end debt, particularly in the face of ample liquidity in Wella stake. Note local issuer JAB, owns 52% of the co.
- Sudzucker; issues FY26 guidance that remains lacklustre as it rides out EU sugar price falls. We expect rating downgrades. Retail denominated 32s are -18bps tighter after pricing -25bps through our FV in late Jan and the sentiment is helping the non-retail 27s rally in. Sudz is a seasoned operator through cycles – ones that in the past has tested its IG status. Credit seems keen to look past this one.
- Kering; numbers disappoint by not showing any significant signs of stabilisation. Management says no signs of LFL growth in stores but those with more “newness” are showing more “supportive” trends. It is using that to guide to MSD to HSD LFL growth in stores this year and EBIT to be flat (full here).
- British American Tobacco comes off an anaemic year and guides for this one to be the same. Add on £6.2b in bulk Canadian litigation settlement and is looking like a lacklustre credit. It is facing market share losses in vapes – a growth segment. Capex spend is not indicative it is in a rush to fix that.
Event driven news
- Barry Callebaut; we knew it had taken out a €1b Term Loan but it turns out this was bridge financing. Final sizing on the 2-part this week was ~CHF1.65b - when combined with the CHF300m Jan issuance is in-line with our CHF2b assumption for funding this year. A revisit to fundamentals and common questions here.
- Carrefour; buys out the 1/3 it does not own in Brazil operations for ~€890m/0.2x of leverage. It is already fully consolidated in financial statements.
- Reckitt; leaks on the homecare divestment (13% of group revenues) is drifting down from £6b+ to “up to £5b” now. The number is not a mover for credit – leverage will stay unchanged at net 2.0x, excess to capex or equity holders.
- Walgreen Boots; another credit negative for the short-end on a $988m court verdict – it had only provisioned $79m. Separately, Bloomberg carries leaks bankers have been prescribed to look at restructuring for loss-making VillageMD clinics – as has been the case for sometime now.
Primary (NIC in brackets)
- Securitas 7.25y +110 (-2 through), Barry Callebaut 3y +150 (30 NIC), 6.5y +200 (25 NIC)
- Carlsberg; €Bmrk; 2y FRN, 4.5y, 7y, 10y. £ Bmrk 14y. This is for Britvic acquisition, €4.2b bridge loan drawn, expect supply in that amount.
- FedEx; consent solicitation still does not have majority on the 1.3% €31s. 25bp cash fee for participation, deadline is 21st Feb.
Rating Action
- JAB (Baa1 Stable/BBB+ Watch Neg); S&P moves from negative outlook to watch negative. As warned last week it has an issue with it holding only 55% in public equities (wants 70%). IPO pipeline is hard to predict timing of. On leverage we see a +2ppt move (to 26% LTV) driven by Coty’s equity performance. Managements governance in the driver seat for credit - history is a positive on that front.
- Metro AG (NR/BBB-; Neg); S&P has no firm view on how much of an uplift EP Group (BBB- Stable) may give to Metro ratings. It stays unchanged on FY assumptions while noting the weak margin and cash flow performance over 1Q.
- Coty (secured; Ba1 Stable/BBB-/BBB-); Moody’s upgrades it from Ba2 Pos. The stable outlook, and earnings flatlining, implies it will stay crossover rated for another year.
- Barry Callebaut (Baa3/BBB-; Stable); Supportive comments from S&P as it stays on stable outlook. It’s take is driven by the assumption of an eventual moderation in Cocoa prices.
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STIR: Markets Move Towards Pricing 60bp Of BoE Cuts Through '25
Jan-15 15:45
Dovish BoE repricing extends further in the wake of the U.S. CPI data.
- BoE-dated OIS shows 57.5bp of cuts through year-end, over 20bp more dovish on the day.
- Markets near enough fully discount the next 25bp cut come the end of the March meeting, with 36bp of easing priced through May. We continue to look for cuts in February and May at this stage.
- SONIA futures now 3.0-20.0 higher on the day, building on the recovery from yesterday’s cycle lows in many contracts.
- Comments from BoE dovish dissenter Taylor eyed (16:30).
- Participants will be attuned to any comments pertaining to recent hawkish market adjustments (although a fair amount of those moves have been unwound today) and this morning’s softer-than-expected CPI reading (which was largely driven by volatile components).
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Feb-25 | 4.491 | -20.9 |
Mar-25 | 4.456 | -24.4 |
May-25 | 4.341 | -35.9 |
Jun-25 | 4.297 | -40.3 |
Aug-25 | 4.216 | -48.4 |
Sep-25 | 4.191 | -50.9 |
Nov-25 | 4.143 | -55.7 |
Dec-25 | 4.127 | -57.3 |
US DATA: CPI Wrap: But Near-Term Fed Caution Still Warranted [2/2]
Jan-15 15:43
- In trend terms, the three-month core CPI run rate eased four tenths to 3.3% annualized (lowest since Sept) but the six-month run rate accelerated three tenths to 3.2% (highest since June).
- The Y/Y rate meanwhile inched lower from 3.32% to 3.24% Y/Y (exaggerating what looks like a miss on the 3.3% expected), with the six-month rate running just 5bps lower in a sign of recent stickiness. The six-month rate has been running below the Y/Y since July and in October was as much at 76bps softer.
- As for core PCE implications, having been revised a few bps above the ~0.20% M/M seen prior to yesterday’s PPI, we’re now more likely at estimates in the mid to high teens for December (Cleveland Fed tracking 0.19%). We’ll revert as more updated estimates come through.
- All told, it’s a moderately more dovish report than expected against a firmly hawkish market backdrop (helping explain the magnitude of the reaction with 2Y Tsy yields ~9bps lower post release), but one that in trend terms continues to warrant near term Fed caution.
US DATA: CPI Wrap: Some Encouraging Aspects [1/2]
Jan-15 15:42
- Headline CPI was close to expectations in December, rising 0.39% M/M (sa, cons 0.4) and 2.89% Y/Y (cons 2.9%) with energy unsurprisingly providing a strong driver with a 2.6% M/M increase.
- Core CPI meanwhile was on the soft side of expectations, at 0.225% M/M (vs unrounded analyst estimates we’d seen averaging 0.25%, range 0.22-0.29) after four months oscillating between 0.28-0.31% M/M.
- Key rental series were roughly in line on balance, accelerating after a surprisingly soft November. At 0.31% M/M, the weighted average of OER and primary rents lifted from 0.23%, the first print since Apr 2021 that was softer than the 0.27/0.28% averaged pre-pandemic (it briefly drew level with that pace back in June). It does however keep rental inflation on a rough, and long-awaited, disinflationary path.
- Away from rents, ‘supercore’ CPI was at the low end of expectations at 0.205% M/M after four months averaging 0.35% M/M.
- Core goods disinflation was arguably more notable though, reverting to just 0.05% M/M after the 0.31% M/M in November had been its strongest monthly increase since May 2023. It came despite used vehicles prices rising a stronger than expected 1.2%.
As for the surprises across the main single items behind core CPI, it’s notable to us that there were very few large category misses skewing the modest softness on the month, with lodging the largest (-0.95% M/M vs limited estimates between 0.1-1.5%).
