EU TECHNOLOGY: Nokia: Nvidia Investment (x2)
(NOKIA; Ba1/BBB-/BBB-)
We think the name eventually sees rating upside but hadn’t considered this particularly likely until cash flow recovered further; LTM reported FCF of €1.3bn at Q325 is at the lower end of the recent range and -65% YoY. Cashflow is also typically volatile due to working-capital seasonality and payment timing which makes us think agencies likely look for more obvious shifts in the outlook.
While we think the Nvidia news is a positive and likely EBITDA/CF-accretive over the longer run, we don’t see it as doing much to alter the CF outlook in the near term.
Spreads sit at the tighter end of the recent range both the BBB- €IG corps index and against peer Ericsson. We note the Nokia €630mn 26s mature in March and are callable in November though we think the existing net cash balance means the equity injection doesn’t change the dynamic too much.
- Each agency is looking for CF improvement to upgrade
- Moody’s: Strong FCF gen after s/h distributions
- S&P: FOCF after leases >€1.3bn
- Fitch: Pre-div FCF margin consistently >5%
- We think divs/BBs make Moody’s upside unlikely while Fitch just affirmed at BBB- in Sept.
- A rough calc of LTM FOCF ex lease gets us to ~€1bn (but with no view on S&P adjustments).
- Note the agencies specify other requirements but we think CF is the main limiting factor.
- Q3 earnings bullet: https://mni.marketnews.com/3L3cC9U
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Historical bullets
EURGBP TECHS: Sights Are On The Bull Trigger
- RES 4: 0.8835 High May 3 2023
- RES 3: 0.8800 Round number resistance
- RES 2: 0.8769 High Jul 28 and the bull trigger
- RES 1: 0.8751 High Sep 25
- PRICE: 0.8728 @ 18:49 BST Sep 26
- SUP 1: 0.8659/8597 50-day EMA / Low Aug 14 and the bear trigger
- SUP 2: 0.8562 50.0% retracement May 29 - Jul 28 upleg
- SUP 3: 0.8540 Low Jun 30
- SUP 4: 0.8514 61.8% retracement May 29 - Jul 28 upleg
EURGBP is trading closer to its recent highs and a bullish theme remains intact. The latest recovery paves the way for an extension towards the bull trigger at 0.8769, the Jul 28 high. Clearance of this level would strengthen the bull theme. Support to watch lies at 0.8597, the Aug 14 low. A breach of this level would instead reinstate a recent bearish threat. First support is 0.8659, the 50-day EMA.
GBPUSD TECHS: Trades Through Support
- RES 4: 1.3789 High Jul 1 and key resistance
- RES 3: .3661/3726 High Sep 18 / 17
- RES 2: 1.3537 High Sep 23 1
- RES 1: 1.3427 Low Sep 24
- PRICE: 1.3407 @ 18:45 BST Sep 26
- SUP 1: 1.3324 Low Sep 25
- SUP 2: 1.3282 Low Aug 6
- SUP 3: 1.3254 Low Aug 4
- SUP 4: 1.3144 38.2% retracement of the Jan 13 - Jul 1 bull cycle
GBPUSD traded lower last Thursday, marking an extension of the current bear cycle that started Sep 17. The move down has resulted in a break of 1.3491, a trendline support drawn from the Aug 1 low. This undermines a recent bullish theme. Note too that 1.3333, the Sep 3 low and a key support, has been pierced, opening 1.3282 next, the Aug 6 low. Initial resistance to watch is 1.3537, the Sep 23 high. A break of it would signal a reversal.
EURUSD TECHS: Breaches Support At The 50- Day EMA
- RES 4: 1.2063 2.236 proj of the Feb 28 - Mar 18 - 247 price swing
- RES 3: 1.2000 Round number resistance
- RES 2: 1.1919/23 High Sep 17 / 2.0 proj of Feb 28 - Mar 18-27 swing
- RES 1: 1.1735/1820 20-day EMA / High Sep 23
- PRICE: 1.1701 @ 18:39 BST Sep 26
- SUP 1: 1.1646 Low Sep 25
- SUP 2: 1.1574 Low Aug 27
- SUP 3: 1.1528 Low Aug 5
- SUP 4: 1.1392 Low Aug 1 and bear trigger.
The trend theme in EURUSD is unchanged, it remains bullish and the recent pullback appears corrective. However, support at 1.1680. the 50-day EMA, has been breached. A clear break of this average would signal scope for a deeper retracement and expose 1.1574 initially, the Aug 27 low. For bulls, a resumption of gains would refocus attention on 1.1923, a Fibonacci projection. Initial firm resistance to watch is 1.1820, the Sep 23 high.
