EM LATAM CREDIT: Suzano Tissue JV With Kimberly-Clark - Positive
(SUZANO; Baa3pos/BBB-/BBB-pos)
"*SUZANO TO PAY $1.73B FOR 51% OF TISSUE JV WITH KIMBERLY-CLARK" - BBG
Brazil paper company Suzano became more diversified by both product and geography as they added a tissue paper business.
They are buying a 51% stake in the JV from U.S. based paper company Kimberly-Clark with well known brands such as Kleenex and Scott tissue. The company has a call option to buy the rest of the business in the future.
The company's revenue from pulp will decline from 79% to 58% while potentially more stable cash flows will be added with consumer goods now comprising 31% of revenues. In terms of EBITDA, pulp will fall from 87% to 78% while consumer goods will rise from 4% to 14%.
Geographically, Brazil as a % of revenues will decline from 20% to 15% while Europe will rise from 26% to 31% and Asia will fall from 33% to 28% while LATAM (ex-Br) will increase from 4 to 8%.
We estimate leverage proforma would increase from 3x at 1Q 2025 to 3.3x which is not that much considering the improved diversification that potentially provides a more stable cash flow profile overall with this vertical integration.
We don't observe much market reaction to the news. SUZANO 2032s were last quoted T+134bps which is 6bps tighter today, in line with other Brazil corporate bonds, and 25bps tighter QTD, 26 bps tighter YTD.
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EURJPY TECHS: Retracement Extends
- RES 4: 165.92 2.0% 10-dma envelope
- RES 3: 165.43 High Nov 8
- RES 2: 164.90 High Dec 30 ‘24 and a key medium-term resistance
- RES 1: 164.63 High Mar 18 and the bull trigger
- PRICE: 161.98 @ 16:57 GMT May 6
- SUP 1: 161.69/60 50-day EMA / Intraday low
- SUP 2: 160.99 Low Apr 22
- SUP 3: 159.48 Low Apr 9
- SUP 4: 158.56 61.8% retracement of the Feb 28 - May 2 bull leg
A bullish theme in EURJPY remains intact despite the pullback from last Friday’s high. The recent print above key resistance at 164.19, Mar 18 high, is a positive development for bulls. A clear break of this hurdle would confirm a resumption of the upleg that started Feb 28. This would open 164.90 next, the Dec 30 ‘24 high. First key support to watch is 161.69, the 50-day EMA. It has been pierced, a clear break would undermine the bull cycle.
US STOCKS: Late Equities Roundup: Utilities & Energy Sectors Outperform
- Stocks continue to trade weaker late Tuesday, but off morning lows, buoyed by Utilities and Energy sectors as crude prices rebound (WTI +1.93 at 59.06). Currently, the DJIA trades down 304.04 points (-0.74%) at 40914.08, S&P E-Minis down 29.75 points (-0.52%) at 5642, Nasdaq down 107.1 points (-0.6%) at 17737.53.
- Constellation Energy surged 12.22% after missing earnings but revenues beat ($6.8B), Vistra +4.56%, Duke Energy +2.64% and AES Corp +2.19%. Leading oil and gas stocks included APA +2.16%, Marathon +1.97%, Exxon Mobil +1.70%, Occidental Petroleum +1.44% and Kinder Morgan +1.04%.
- Conversely, Health Care and Information Technology sectors underperformed, pharmaceuticals weighing on the former: Vertex Pharmaceuticals -11.69% on light first quarter sales, Moderna -11.68%, Regeneron Pharmaceuticals -6.76% and Eli Lilly -5.41%.
- Meanwhile, Information Technology sector shares underperformed: despite better than expected earnings, Palantir Technologies fell 11.69% as analysts raise international growth concerns; elsewhere, Teradyne -1.71% and Intel Corp -1.50%.
- The latest earnings cycle is approximately 76.8% complete (by market cap of the S&P 500). Earnings expected after today's close include: Cytokinetics Inc, Lucid Group, Arista Networks, Advanced Micro Devices, Rivian Automotive, Astera Labs, International Flavors & Fragrances, Electronic Arts, Mosaic, Wynn Resorts, Eos Energy, Devon Energy and Super Micro Computer.
US OUTLOOK/OPINION: Macro Since Last FOMC: Growth - Confidence Slumps [2/2]
- This relative resilience in the hard data, which still doesn’t yet reflect the escalation in US trade policy in April, is in firm contrast to soft data.
- The Conference Board reported consumer confidence fell for a fifth consecutive month in April to its lowest since May 2020, although its expectations component was even weaker at its lowest since Oct 2011. After a 12.5pt decline to 54.4, expectations are "well below the threshold of 80 that usually signals a recession ahead" per the Conf. Board press release. This came as "expectations about future income prospects turned clearly negative for the first time in five years".
- These findings are echoed in the University of Michigan consumer survey although it’s flash/final readings suggest the partial backtracking on reciprocal tariffs on Apr 9 after market turmoil following Apr 2 “Liberation Day” announcements prevented an even worse reading.
- Specifically, consumer sentiment fell from 57.0 in March to 52.2 as opposed to 50.8 in the preliminary reading (which had been collected Mar 25-Apr 8), although that’s still the lowest since mid-2022 and below any month for sentiment through 2008-09. Within the survey, unemployment expectations for twelve months out have seen two months with an index close to lows seen in 2008/09 (lows here being higher unemployment, and specifically the pace of increases rather than level of unemployment).
