EU CONSUMER CYCLICALS: Elis; FY (to Dec) results
(ELISGP; Baa3/BBB-; Stable) (Equities +6%)
Elis €28s is +8 today and giving +20 over Securitas (i.e. wide end of services). Similar story in CDS (flat basis vs. peers well negative).
Elis is a flat linen & workwear-clothing rental, laundry and hygiene services co. It has demonstrated cycle resiliency with MSD growth last year including in its core regions of France and Central Europe. Within latter that includes an impressive +8% organic growth in Germany (GDP -0.2%). As a group it is 30% exposed to more staple healthcare clients. Guidance is for LSD growth to continue and there is no evidence of a slowdown beyond that in the 4Q numbers. The changes to capital allocation policy is to be expected given where leverage is.
Reminder there was a M&A scare in September (it was looking at large US players it could acquire to enter the market there). It turned it down given negotiations did not meet its strict valuation hurdles (it says but there was plenty of shareholder protest at the time given potential margin dilution). It has again clarified that it has NO discussions ongoing with large players but notes over long-run it is open to entering new markets with larger M&A under the conditions of 1) keeping an IG rating 2) favourable for shareholder value. For those attempting to hide from Tariff uncertainty, services co's can provide that and in Elis case no US or China exposure eliminates any uncertainty.
€500m due in April this year, we do expect refi supply.
We already had the prelim results but to reiterate
- FY revenue of €4.6b (organic +5%, net +6%)
- adj. EBIT at €730m on a 16% margin (+20bps)
- FCF of €350m (+14%) (note maintenance capex runs high for the co at ~20% of sales/€800-900m)
- reported net leverage at 1.85x (-0.2x)
- including €600m in leases (+70m yoy), n/g 2.3x/2.65x
New capital allocation policy which will involve:
- bolt-ons of €50-150m/yr
- max deleveraging of -0.1x/yr
- excess cash to equity holders
FY guidance:
- Organic revenue growth "slightly below +4%"
- adj. margins and FCF all "slightly higher"
- net debt ex. leases to fall -0.1x by year-end (reported 1.85x)
- dividend bumped by +5% to €107m alongside a new €150m buyback programme (total €257m)
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STIR: Effective Fed Funds Rate
- FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $94B
- Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $264B
- Earlier Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.35% (-0.03), volume: $2.413T
- Broad General Collateral Rate (BGCR): 4.33% (-0.01), volume: $913B
- Tri-Party General Collateral Rate (TCR): 4.33% (-0.01), volume: $890B
- (rate, volume levels reflect prior session)
FOREX: CADJPY Recovery Bolstered by Hold of Trendline Support
- Following in the footsteps of Mexico’s administration, Canadian PM Justin Trudeau announced an agreement with the US, circumventing the immediate implementation of 25% tariffs.
- CADJPY has moderately outperformed following the sharp CAD recovery from Monday’s lows, extending the bounce to 2.93% in recent trade, and up 0.68% during today’s session.
- The recovery has been bolstered by the cross holding trendline support on Monday, drawn from the 2020 lows. The trendline intersects close to the psychological 105.00 handle, which has proved pivotal on a closing basis over the last 18 months.
- An extension of strength today has narrowed the gap to both 20- and 50-day EMAs, currently intersecting at 108.13 and 108.52 respectively.
- ING believe markets are not fully pricing out the tariff threat just yet. Primarily because of the short delay, but also because headlines have provided a higher degree of uncertainty and unpredictability that harms high-beta currencies. This is due to direct protectionism exposures and due to risk sentiment implications.
- However, they highlight a cross like AUD/CAD should trade sharply lower given Canada has dodged tariffs and China has not, but it is only 0.5% lower on the day. That signals markets are pricing in a good chance that the US and China will also strike a deal and delay tariffs.
BONDS: Core Bonds are seeing broader selling
- Some selling in Govies across both sides of the Pond, and while the Volume in Tnotes is fairly subdued, the German Bund sees a notable session in terms of Volumes.
- Initial support in Bund is seen at 132.34, Monday's opening gap.
