CONSUMER CYCLICALS: Consumer & Transport; Week in Review

Rating action remains in the driver seat for now while supply was focused in HY. On the latter it was a warm reception to both issuers that came, as we highlighted here. We took a step-back this week to look at coupon-step ups and how they have flown under the radar recently. We will continue to flag a few more sector themes from this year in the coming weeks as we round up the year.

Fundamentals linked news

• IDS: 1H results mark turn to operating profit, but guidance is lacklustre. The 28s, a value view from earlier this year that has performed, continues to give width and has support from 1.25% step-ups.
• Imperial Brands: FY results show firm pricing offsetting volume declines. It may edge out as one of the firmer names in BBB Tobacco this year – but caution on trading it on trailing performance. It is still only 4% exposed to next-gen products – well behind peers.
• FDJ: performance in secondary is lacklustre after pricing took us by surprise last week.

Event Driven Movers

• Alimentation Couche-Tard: The take-private offer from 7-11 insider – Ito - continues to make headlines. It marks a continued series of roadblocks for Couche ever since showing an interest in the Japanese name
• DSV: CFO is quoted on Bloomberg that he is “confident” on achieving the remaining half of regulatory approvals. 101 Special Mandatory Redemption if it fails to before the end of next year.
• Tapestry: goes ahead with its guided-to $2b buyback funded by a $750m term-loan and $1b revolver. We do hope it comes to local markets for refi. Filings indicated an expected 101 call on all local bonds to occur around 25th/Monday.

Primary Activity (fundamentals linked)

• Priced: Booking.com (8/13/20.3 Y giving +1/+4/+8bp NICs), TUI Cruises (5.5NC2 @ 5% vs. FV 4.9%), B&M (£7NC3 @ 6.5% vs. FV 6.45%).
• Other: €200m of €350m Playtech 26s pulled at par, the rest will be taken out on Snai close (exp. 2Q). Tapestry 101 call on all Euro bonds expected around Monday/25th.

Rating Actions

• ITM Entreprises (NR/BBB- Neg): S&P initiates on the company at the edge of IG but comments are very supportive, and leverage is in-line with our calculations from primary. The 29s find justified support on it. We do expect supply for the €450m outstanding in a bridge-to-bond facility.
• Manpower (Baa1 Stable/BBB Neg): S&P moves to negative outlook but stays optimistic on a recovery ahead. It is low levered and trades wide leaving us more concerned for peers – all facing headwinds that are being attributed to macro (for now).
• Barry Callebaut (Baa3/BBB-; Stable): S&P downgrade to BBB- reflects the leverage spike this year to fund rising working capital requirements (6-month cycle from purchase-to-sale and increased margin requirements on futures contracts). Cocoa prices are spiking back to their peaks on concerns of dry weather in West Africa (70% of global production). We do see that as negative given potential for demand destruction from continued shelf-price increases and the potential for continued WC (and hence FCF) headwind.
• Burberry (Baa3 Neg/NR): Moody’s downgrades it by 1-notch and stays on negative outlook as we expected. It is wide on RV and Q2 results were far from worst case - but we remain cautious given the weak FY guidance and prefer to wait and see the Q3 trading update in 2 months.
• Wizz Air (Ba1 Neg/NR/BB+): Moody’s moves to neg. outlook but not on any liquidity concerns. The recent fallen angel was a value view from September (when sellers emerged) and has performed well since. We see levels fair here.
• TUI Cruises (unsecured; B2/B+/B+): one-notch upgrades from all three raters as it refinanced its 26s. It is riding firm grown that is lifting most cruise operators – pricing in primary reflected that.