EU CONSUMER CYCLICALS: Consumer & Transport: Week in Review

Relatively strong compression, in line with a high-single digit tightening down in HY. It does look selective and outperformers in VFC and Flutter both look deserving to us. Retail bonds also outpeformerd led by Sixt. That did not extend to Lufthansa which  finally found its floor as some retail lines moved wider on reported selling. If primary does not come through next week, the event calendar will remain empty. 

• Kering is moved to negative outlook by S&P avoiding a likely market expected downgrade. We see the main reason for more leeway as the clarification company  gave in the last earnings call around the mechanics of the Valentino put and why that would mean it would be unlikely to be exercised next year.
• Pandora showed signs of slowing LFL sales growth as it still edges its 9th straight quarter of growth. The former was enough to disappoint equities that fell -19%. We still see the credit as firm.
• Deutsche Bahn announced it will replace its CEO after continued criticism on its poor performance running the German rail network. Despite latter coming alongside sizeable financial losses and a now expected Capex ramp-up to fix, S&P rewarded it with a double notch rating upgrade earlier this month on more budget support from the government. 1H capex totalled €7.3b of which only €1.8b was not financed by the government.  
• VFC’s 24-month in CEO, Bracken Darrell, did an interview mostly repeating his core strategy to turnaround the company. Despite the new management’s history of back-to-back beats and now two of the three major brands in growth, equities still shy away from pricing any aggressive growth. Weak guidance for next quarter alongside still high-single digit fall in Vans may be acting as the headwinds to sentiment.
• Carlsberg reports suprisingly firm Western Europe growth in beers while Asia and soft drinks  were weaker. As is industry wide, zero-alcohol beers continued to lead the growth. It has less room than peers for any weakness given still elevated leverage post Britvic purchase.  
• IHG had S&P affirm it is well positioned for ratings. It echoed our comments from earnings last week. We see relative value (vs. Accor & easyJet) still – curve outperforms this week.
• Auchan completes the €2.9b transfer of its 27-29 bonds to its real-estate arm, NIH, moving it closer to a stronger performing/IG like business. NIH has covenants limiting indebtedness (LTV), secured debt to <20% and ICR – it may come close to some of those thresholds post transfer if it does not post better NIH earnings in the 2H.  
• No Primary