CONSUMER CYCLICALS: Consumer & Transport: Week in Review

We started the week with M&A (in Transport) and end the week on the same note (back in Consumer). We also had our first two instances of seeing value in a while; the first was in Primary on Scandinavian Tobacco - it has moved through our levels where we saw a buffer to FV (-30bps since pricing) – and the second was with Pluxee in secondary. Mobico is still not finding support - we will need to circle back on firming up a value view on the £28s (UKT+190) that has support from coupon step-ups.

Notable Earnings

• Alimentation Couche-Tard reports in-line results. That still leaves a fall in transport volumes and low-end consumer spend. Guidance is not for that to change anytime soon BS comments are credit positive.
• VFC releases a 8-K filing detailing Supreme earnings over the last year and shows the support the profitable brand was giving the group. Guidance is given excluding it in both years.

Event Driven Movers

• 7-11 parent formally rejects Couche-Tard’s offer as expected. Couche would have likely had some idea of this resistance so unclear what its intentions were/are.
• DSV looks to be closing on the €14b DB Schenker bid. Risk of that transaction should be priced - and is in the belly. Those on the sidelines should wait-out the potential supply.
• Elis is reported to be making an offer for US comparable Vestis. The transaction breaks a series of cash funded smaller bolt-ons and we initially thought it may put a pause on its expected IG uplift. See initial RV here and pro-forma BS and rating thoughts here. It has since confirmed the transaction and made very positive BS/leverage comments see here.
• Lufthansa is reportedly seeking 20% stake in Air-Portugal for €180-200m. The airline is being fought over by the 3 majors; only Air-France winning would be a credit worry for us.
• Airbus A350 engine issues look contained for now (particularly on repair time). Updates since the linked note has come from the EU Aviation body stating all A350 engines will require inspection of the fuel hose connections. Turnaround time looks quick, and it is a “precautionary measure”.
• Tobacco regulation tightening may be coming to the UK. It’s a friendly reminder of which direction regulation will trend as impact on voters (from lower smoking rates) comes down.
• US government body led national survey shows vaping rates fall sharply among school students; spells trouble for Tobacco companies that rely on e-cigarettes as a growth segment.

Primary

• Priced: Kerry Group, Loomis, Experian, Scandinavian Tobacco, Danone

Rating Actions

• Mondelez (Baa1 Pos/BBB): Moody’s moves to positive outlook as BS leverage stays low. Note Moody’s continues to notch the international arm 1-notch higher vs. parent.
• Whirlpool (Baa2 Neg/BBB-/BBB Neg); Moody’s moves to negative outlook. We encourage caution on both the IG home appliance retailers - Electrolux being the other.
• Boparan (Secured 25s; Caa1 Pos/B- CW Pos/B-); S&P moves to credit watch positive after the co announced the €200m sale of the European poultry operations. Single £525m Nov 25 is the front maturity; S&P expects full refinancing of that by the end of November this year.