EU CONSUMER CYCLICALS: Coty; widens on sellers
(Secured; Ba2 Pos/ BBB- Stable/BBB- Stable)
Coty 27/28s are +10-15bps wider on reported sellers of both.
Note Coty 28 are the shorter duration line. This is a rising star; its guiding to net leverage ~2.5x by the end of this year vs. 3.4x at Sept. Most deleveraging (implied ~$745m reduction in $3.7b net debt load) will come from continued sell-down in hair-care brand Wella (25.8% stake remaining valued at $1.1b).
1H/6m to Dec '24 guidance is for LFL sales growth of +3-4%, a slow-down from 1Q +4.5%. Similar growth is expected in 2H. FY (12m to June '25) guidance for EBITDA growth is now in the lower end of +9-11% range, backloaded into the final two quarters (i.e. 1H of this calendar year). FCF guidance is firm at low-mid $400m (FY24 $369m)
The problem areas (= flat to LSD growth) are the cheaper mass consumer beauty segment ($5-20 product range) - in particularly in the US, and Asia as a region (incl. travel retail) - driven by the Chinese consumer. It's exposure to both is low; Prestige ($20-$450) now makes up 60% of revenues and 85% of EBIT (higher margin) - growth here is guided to be firmer. Asia is small; China 3% and globally travel retail is only 9%. On both fronts we have higher beta names including Couche-Tard (exposure to low-end US consumer) and Kering (exposure to China).
Coty 27s were a value view in primary and moved -20bps/+1pt tighter on the break. We still the curve as attractive for short-end carry. Re. the equity px action (-40% since start of '24) it is still trading within historical P/E ranges, the absolute move likely reflecting the normalising growth rates ahead.
3m to Dec (Q2) results generally come early Feb.
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MACRO ANALYSIS: MNI US Macro Weekly: Inflation Data Keep Fed Cut On Track
We have published and e-mailed to subscribers the MNI US Macro Weekly offering succinct MNI analysis across the range of macro developments over the past week. Please find the full report here:
USDCAD TECHS: Fresh Cycle High
- RES 4: 1.4393 2.0% 10-dma envelope
- RES 3: 1.4327 2.382 proj of the Oct 17 - Nov 1 - 6 price swing
- RES 2: 1.4296 2.236 proj of the Oct 17 - Nov 1 - 6 price swing
- RES 1: 1.4246 2.00 proj of the Oct 17 - Nov 1 - 6 price swing
- PRICE: 1.4236 @ 16:38 GMT Dec 13
- SUP 1: 1.4069/3944 20- and 50-day EMA values
- SUP 2: 1.3928 Low Nov 25 and a key support
- SUP 3: 1.3822 Low Nov 6
- SUP 4: 1.3747 Low Oct 17
The trend direction in USDCAD remains up and this week’s gains to a fresh cycle high, reinforces the current bullish theme. The pair has cleared 1.4178, the Nov 26 high, to confirm resumption of the uptrend and maintain the price sequence of higher highs and higher lows. Sights are on 1.4246 next, a Fibonacci projection. Key short-term support has been defined at 1.3928, the Nov 25 low. Initial support to watch lies at 1.4069, the 20-day EMA.
US TSYS: Extending Late Session Lows, Curves Bear Steepen Ahead Next Wed's FOMC
- Treasuries traded steadily lower throughout Friday's session, initially mirroring weak action in Bunds and Gilts. By the close, the Mar'25 10Y contract slipped to 109-26 (-18) the lowest level since November 22, 10Y yield rising to 4.4046% high (+.0768).
- Initial technical support at 109-22 (76.4% Nov 15 - Dec 6 Upleg) followed by 109-20 (Low Nov 20/21).
- Curves bear steepened: 2s10s +2.272 at 15.568 as short end rates outperformed ahead of next week's FOMC policy announcement where another 25bp rate cut was expected but not certain amid current macro and political uncertainty. That said, the latest unemployment and inflation data have kept the FOMC on track to cut the federal funds rate by 25bp (to 4.25-4.50%) next Wednesday.
- Projected rate cuts into early 2025 look near steady to lower vs. this morning levels (*) as follows: Dec'24 cumulative -24.3bp (-23.7bp), Jan'25 -28.6bp (-29.6bp), Mar'25 -42.2bp (-43.9bp), May'25 -48.4bp (-50.5bp).
- No reaction to this morning's import/export prices, Monday brings flash S&P Global PMIs, Retail Sales, IP & Cap-U on Tuesday.
