EU CONSUMER CYCLICALS: Coty: S&P Comments on Strategic Review
(COTY; Ba1/BBB- Neg/BBB-)
- S&P pegs the business under review at 25% of revenue but <10% of EBIT.
- We had 20%/9% yesterday — revenue we need to correct to $1.6bn/25%.
- Sees the segment as FCF negative.
- No disclosure from Coty, but unsurprising given the -$127m statutory EBIT loss last year.
- Its breakeven point - before it sees the transaction/loss of scale as positive - seems to be $700m in debt reduction. It sees that moving leverage under net 4x (from current 4.4x).
- EBITDA for the broader Consumer division (incl. body care and mass fragrance) was $197m. We estimate S&P is assuming ~$100m EBITDA for the assets under review.
- It stays on negative outcook for now.
We are unch in seeing the transaction as neutral to short end investors, credit negative for longer-term fundamentals. Partly driving latter view is how much deleveraging capacity a sale may provide - keeping in mind Coty itself is trading on a 10x EV/EBITDA. Still the bar for pro-forma leverage to be lower is low; it needs to achieve a sale multiple (EV/EBITDA) higher than current leverage.
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