EU CONSUMER CYCLICALS: Consumer & Transport: Week in Review

We are not sure we’ve ever seen Coca-Cola (KO) move more than VFC on risk-off - but that’s what played out this week. Technicals likely behind it: two large high-grade prints (Visa, Alphabet) soaking up demand. But it leaves questionable RV: can 16y Coca-Cola Europacific (the bottler) really trade -10bps inside partial owner Coca-Cola? Elsewhere, Whirlpool’s +40bp move on a junking is another friendly reminder that near-term ratings catalysts can matter more than earnings trajectory. Earnings slow down next week with Elis, Pandora, Flutter and IHG of note. But we still expect volatility from ratings, supply, and Mobico.

• Mobico reports FY results with the normal slew of one-off adjustments that leave earnings lacklustre and us still seeing only rating downside (at Fitch). Senior bonds finally reacted, as equities showed no signs of reversing a >40% drawdown. We flagged later in the week that the potential for an Event of Default is real – we see conditions met under the cessation of business clause, which could force par redemption on the £28s and €31s. Mobico, however, does not have enough cash to cover both and terms of the undrawn revolver (e.g. cross-default) are unclear.
• Kraft Heinz: sales still weak, but guidance calls for improvement. Ratings headroom may buy time, but we continue to see US-heavy F&B as uninteresting vs. broader staples.
• LVMH pays an 8bp NIC and continues the trend of steepening its curve on supply. In line with our view, only the 4y tightened while the 7y weakened further. It trades well wide of fundamentals – we see this ‘Arnault discount’ as warranted.
• Couche-Tard finally signs an NDA with 7&i, gaining access to financials. It may have agreed to tone down public pressure in return.
• Flutter closes on Snai. There is some beta to earnings next week given it has begun equity payouts and was holding leverage outside target. We are expecting supply, currency uncertain.
• Lufthansa opened airline earnings hiding continuing weakness on costs with positive macro backdrop. It says cost pressures will ease in 2H.
• Finnair faces more industrial action. It says some agreements have been struck, but impact on earnings still worsening. Risk skewed negative until fully resolved.
• DSV 1Q results are fine as it moves into the Schenker integration period. Management hints at more refi supply, but likely size is not of concern. Comments on balance sheet governance remain positive.
• Woolworths: earnings fine but more importantly the political catalyst looks favourable ahead of the weekend election. We again see value on the 28s and some on the new 32s.   
• Primary (NIC in brackets): Carrefour 4yr (+4), LVMH 3.9yr (+8), 6.9yr (+8), Tesco 7y (0), Aeroporti di Roma 7.1y (+3)
• Whirlpool: Both S&P and Moody’s cut to junk. Moody’s holds a negative outlook. We’ve flagged concerns for a while.
• Altria: Moody’s lifts negative outlook and stabilises ratings.
• AB-InBev: Moody’s follows S&P and moves to positive outlook.