CONSUMER CYCLICALS: Consumer & Transport; Week in Review

Clear bid in reverse-Yankee’s following the US election; again caution on the curve specific dynamics (Couche Tard has flagged $10b of M&A appetite, VF is likely facing a near-term S&P junking etc.). Looking ahead earnings season is trailing off but the last of our five highest beta is yet to come; Burberry on Thursday; £600m in sterling bonds waiting anxiously for it. We will also get the first month of US retail sales that was not covered by Q3 earnings next week; consensus expects nominal growth to continue; control group +0.3% MoM (prev. +0.7%).

Fundamentals linked news

• Adecco was 1-of-6 names we were concerned for heading into this quarter earnings and unfortunately it has not proven us wrong. We encourage caution and expect rating action.
• IAG was a strong value screen after 1H results – even in the face of macro-led selling. Results are strong, discount was traded away heading into earnings.
• Richemont results again point to deterioration in Chinese consumer – one competitors have reported throughout this quarter. Its standalone performance is mixed; strength in core jewellery more than offsetting continued weakness in Watches. Balance sheet and ratings are in its control.
• PostNL guidance cut comes alongside a CEO departure. We expect a S&P downgrade on the numbers and refrain from a firm view - particularly when shorter IDSLN28s trade in-line (earnings ahead).
• Air-France reports in-line numbers and far from the potential worst case. Levels are more interesting, but we struggle to see the positive catalyst - particularly with overhanging supply risk and French tax uncertainty.
• Tobacco; nicotine pouches are a tailwind for Tobacco earnings but that seems to be attracting attention of regulators as well. France may be considering a ban.
• Pandora continues to highlight its less cyclical exposure as an “accessible” jewellery retailer – further cushioned by near-zero exposure to China

Event Driven Movers

• Burberry; takeover rumours were bound to eventually begin as equities fell into a single-digit multiple. Moncler, a company Bernard Arnault recently took a stake in, is the first of such. We see Moncler as a ~1-2 notch rating uplift pro-forma but we don’t think spreads should move on this yet given the chance of PE bids competing and near term negative catalyst on earnings.
• Carrefour; faces leaks it is considering reorganisation including potential divestments, acquisitions or partnerships. Couche-Tard has had a run at acquiring it the past but ran into regulation – a similar issue it is having again with 7-11. Auchan has said it’s M&A appetite is limited.
• Reckitt; leaks have a few parties - none local issuers - eyeing Reckitt’s homecare brands that were tabled for sale earlier this year. Reckitt is reportedly seeking £6b while parties Bloomberg spoke to saw it worth less. Regardless, we see the divestments as credit negative.
• Tapestry; M&A situations go bid after a Trump win and a likely conservative replacement over current ‘anti-trust crusader’ and FTC Chair Lina Khan. We don’t see read through to Capri; the appeal was required under the agreement and comments during the earnings call turned down any appetite for substitute M&A. Capri followed with continued poor earnings, only adding to the likelihood Tapestry will view the FTC block as a blessing in disguise.
• Auchan; after leaks of job cuts, follows with a formal presser confirming it alongside few store closures. It adds the pricing alliance with ITM is not enough to be competitive in the market.

No Primary

Rating Actions

• Elis (Baa3 Stable/ BBB-); a Moody’s upgrade welcomes it into IG. As we said after Q3 results it was holding in upgrade territory; the only uncertainty was around sizeable M&A which it has since reverted away from in favour of bolt-ons.
• ISS (Baa3 Post/BBB); Moody’s moves to positive outlook right ahead of earnings; fortunately numbers from latter were fine as well
• JAB (Baa1/BBB+ Neg); S&P moves to negative outlook on the LTV moving up to 24% and the share of public assets moving down to 55%. Concerns on the latter appearing only now are a bit strange - Moody’s seems okay with both
• Picard (Snr Sec; B2 / B Neg / B+ Stable); Fitch downgrades it to B+ stable as expected post tap/leverage increase to buyout the previous owners. It wants to wait and see before making any positive comments on the new owners.