EU CONSUMER STAPLES: Reckitt; valuation comes lower than expected
(RKTLN; A3 Stable now/ A- Stable)
Bloomberg carrying leaks final offers were £3-4b vs. initial expectations for £6b. This is for the home care brands which is 13% of group sales, it has also tabled the Mead Johnson litigation tied unit for sale (17% of sales). Back of the hand estimates we see home care value bids at 7-10x earnings multiple. Company spokesperson has responded with "Reckitt remains committed to the strategy to separate the products and is continuing the process" (bbg).
Reminder Moody's moved to stable last month (from positive) and last night upgraded Haleon to an equal ratings. We have had a unch view over the last year to compress that discount on Haleon and still see catalyst skewed in that direction. Euro 5y gives sizeable 30bps between the two - we are not sure if investors are bidding the Reckitt 30s in on par claim hopes - but we do not see cessation of business clause (to trigger default), nor asset sale covenants. We see no issues under the merger/sale covenant. For those eyeing potential takeover of Reckitt - none of the lines have CoC either.
Similar story on RV in sterling - 33s give +25 above Reckitt.
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BUNDS: Bunds Continue To Cheapen On 5s10s30s Fly
The presence of this morning’s Bund supply helps promote continued underperformance for 10s on the 5s10s30s butterfly.
- 10s sit at the cheapest level witnessed since December ’22 on that structure, with Bunds taking the brunt of the selling stemming from the tabled loosening of German fiscal policy.
- This comes as Bunds provide the most liquid point on the German curve and also probably reflects expectations surrounding the maturity makeup of issuance to fund any spending increases.
Fig. 1: Germany 5-/10-/30-Year Butterfly
Source: MNI - Market News/Bloomberg
EGBS: Spreads A Touch Tighter To Bunds, OATs Set For Tightest Close Since July
EGBS: Adjustments to an apparent moderation in U.S.-Canada trade tensions and the presence of this morning’s 10-Year German supply leaves EGB spreads to Bunds 0.5-1.5bp tighter.
- The recent theme of spread tightening has largely been a function of the shift in expectations surrounding the German fiscal situation, while other nations are generally expected to lean more on taxes/EU funding vehicles when it comes to financing increases in their defence expenditure.
- 10-Year OAT/Bunds has pushed below 70bp for the first time since September in recent days, although the moves below that level haven’t been particularly forceful, last 68.6bp. Current levels would represent the lowest close in the spread since July.
- 10-Year BTP/Bunds hasn’t managed a clean break back below 110bp, with cycle closing lows located at 105.4bp.
- PGBs lag peripheral peers at the margin after the expected ousting of the Portuguese government and with 10- & 13-Year paper set to be auctioned this morning. The German fiscal outlook and sound Portuguese fundamentals continue to limit widening episodes vs. Bunds.
EURIBOR: Call spread buyer
ERM5 97.9375/98.0625 cs Bought for 2.25 in 5k.
