Weekly Credit Update - Danske Bank · 2014. 12. 5. · Carlsberg’s EBIT by c.DKK100m, ... profile...
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Important disclosures and certifications are contained from page 9 of this report. www.danskeresearch.com Investment Research — General Market Conditions Headlines The credit market continues to be well supported Corporate bonds could be included in ECB purchases from January 2015 Carlsberg’s 2015 credit metrics could be negatively affected by a weaker rouble EBA consultation paper on MREL not expected to bring relief to Tier-2 market This week, the iTraxx main index tightened marginally while the iTraxx Crossover (high yield) tightened by 8bp w/w. The credit market continues to be well supported by the hunt for yield. This was also visible from some of the new issues this week. The Danish capital goods company Danfoss printed a seven-year EUR bond at MS+78 as a ‘BBB’ rated first- time issuer. Looking ahead, we note that Mr. Draghi stated in his introductory statement at the ECB press conference this week that ‘early next year the Governing Council will reassess the monetary stimulus achieved, the expansion of the balance sheet and the outlook for price developments’. We believe this indi cates that the ECB will ease monetary policy further at the January meeting, which should continue to support the corporate bond market. In our view, it is likely that the expansion of the current purchases from the ECB could start to include corporate bonds already from January 2015. Over the past week, the rouble continued to weaken significantly due to the economic pressure on the Russian economy following the sharp decline in the oil price. One of the companies with significant exposure to Russia is Danish brewer Carlsberg, which generates around 30-35% of Group EBIT in Eastern Europe, with the vast majority in Russia. Carlsberg has based its 2014 guidance on a EUR/RUB exchange rate of 50. In this respect, we note that the current spot EUR/RUB is 66 and the EUR/RUB 12-month forward rate is at 76. As every full figure the EUR/RUB moves is estimated to affect Carlsberg’s EBIT by c.DKK100m, the move could hit credit metrics negatively in 2015. The European Banking Authority (EBA) has released a consultation paper on MREL (Minimum Requirement for Eligible Liabilities). The MREL will not be a common minimum requirement but will differ from bank to bank. The requirement will be set by the local resolution authorities as a percentage of own funds and total liabilities. However, we do not believe the MREL provided clarity on which instruments will be eligible for MREL. Therefore, we do not expect the paper to bring relief to the Tier-2 market following the proposed TLAC (Total Loss Absorbing Capital) four weeks ago. Selected issues Name Rating Coupon Cur. Tenor Size Spread Danfoss BBB 1.375% EUR 7Y 500 MS+78 LKAB NR 1.125% SEK 5Y 1600 MS+45 LKAB NR FRN SEK 5Y 400 DM+45 ICA Gruppen AB NR FRN SEK 2Y 2000 DM+45 Volvo BB+(e) 4.20% EUR NC5.5 900 MS+380 Volvo BB+(e) 4.85% EUR NC8.25 600 MS+410 Source: Danske Bank Markets, Bloomberg. Size in million, ratings are issue ratings from S&P/Moody’s/Fitch 05 December 2014 Weekly Credit Update Contents Market commentary 1 Selected charts 3 Recently published research 5 Official and shadow ratings 6 iTraxx Europe (investment grade) Source: Bloomberg, Danske Bank Markets iTraxx Crossover (high yield) Source: Bloomberg, Danske Bank Markets Analyst Brian Børsting +45 45 12 8519 [email protected]
Transcript of Weekly Credit Update - Danske Bank · 2014. 12. 5. · Carlsberg’s EBIT by c.DKK100m, ... profile...
Important disclosures and certifications are contained from page 9 of this report. www.danskeresearch.com
Investment Research — General Market Conditions
Headlines
The credit market continues to be well supported
Corporate bonds could be included in ECB purchases from January 2015
Carlsberg’s 2015 credit metrics could be negatively affected by a weaker rouble
EBA consultation paper on MREL not expected to bring relief to Tier-2 market
This week, the iTraxx main index tightened marginally while the iTraxx Crossover (high
yield) tightened by 8bp w/w. The credit market continues to be well supported by the hunt
for yield. This was also visible from some of the new issues this week. The Danish capital
goods company Danfoss printed a seven-year EUR bond at MS+78 as a ‘BBB’ rated first-
time issuer. Looking ahead, we note that Mr. Draghi stated in his introductory statement
at the ECB press conference this week that ‘early next year the Governing Council will
reassess the monetary stimulus achieved, the expansion of the balance sheet and the
outlook for price developments’. We believe this indicates that the ECB will ease
monetary policy further at the January meeting, which should continue to support the
corporate bond market. In our view, it is likely that the expansion of the current purchases
from the ECB could start to include corporate bonds already from January 2015.
Over the past week, the rouble continued to weaken significantly due to the economic
pressure on the Russian economy following the sharp decline in the oil price. One of the
companies with significant exposure to Russia is Danish brewer Carlsberg, which
generates around 30-35% of Group EBIT in Eastern Europe, with the vast majority in
Russia. Carlsberg has based its 2014 guidance on a EUR/RUB exchange rate of 50. In
this respect, we note that the current spot EUR/RUB is 66 and the EUR/RUB 12-month
forward rate is at 76. As every full figure the EUR/RUB moves is estimated to affect
Carlsberg’s EBIT by c.DKK100m, the move could hit credit metrics negatively in 2015.
The European Banking Authority (EBA) has released a consultation paper on MREL
(Minimum Requirement for Eligible Liabilities). The MREL will not be a common
minimum requirement but will differ from bank to bank. The requirement will be set by
the local resolution authorities as a percentage of own funds and total liabilities.
However, we do not believe the MREL provided clarity on which instruments will be
eligible for MREL. Therefore, we do not expect the paper to bring relief to the Tier-2
market following the proposed TLAC (Total Loss Absorbing Capital) four weeks ago.
Selected issues
Name Rating Coupon Cur. Tenor Size Spread
Danfoss BBB 1.375% EUR 7Y 500 MS+78 LKAB NR 1.125% SEK 5Y 1600 MS+45 LKAB NR FRN SEK 5Y 400 DM+45 ICA Gruppen AB NR FRN SEK 2Y 2000 DM+45 Volvo BB+(e) 4.20% EUR NC5.5 900 MS+380 Volvo BB+(e) 4.85% EUR NC8.25 600 MS+410
Source: Danske Bank Markets, Bloomberg. Size in million, ratings are issue ratings from S&P/Moody’s/Fitch
05 December 2014
Weekly Credit Update
Contents
Market commentary 1
Selected charts 3
Recently published research 5
Official and shadow ratings 6
iTraxx Europe (investment grade)
Source: Bloomberg, Danske Bank Markets
iTraxx Crossover (high yield)
Source: Bloomberg, Danske Bank Markets
Analyst Brian Børsting +45 45 12 8519 [email protected]
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Trade recommendations
See the table below for our current trading ideas. We acknowledge that the credit market
in general and the Nordics in particular is not as liquid as other markets, which may affect
the possibility to, for example, short a specific bond. Thus, please see our strategies below
as ideas and input into your own investment process.
Past strategies
Source: Danske Bank Markets
Type Trade Idea
Opened 27 nov 2014
Start spread 73
Opened 25 nov 2014
Start spread 668
Opened 19 nov 2014
Start spread 450
Opened 18 nov 2014
Start spread 2
Opened 13 nov 2014
Start spread 115
Opened 24 okt 2014
Start spread 126
Opened 20 okt 2014
Start spread -5
Opened 20 okt 2014
Start spread 647
Outright VLVY' 17 or VLVY'19 We see the VLVY cash curve at attractively valued and an (uncertain) downgrade is more than priced in to spreads
Outright NYNAAB '18 NYNAAB '18's, which we see as 'B+' indicatively trade way too cheap relative to the industrial 'B+' curve
Outright SAABAB '19 Trading wider than the ‘BBB+’ shadow rating would imply
Curve spread Swith from STENA '19 to
STENA '20
Stena 2020 cheap compared with overall Stena credit curve and the Stena 2019 bond.
Outright COMHSS '19 COMHSS '19 looks cheap compared to other rated and unrated issues in SEK. Trades like a B+, but is officially rated BB-
Curve spread Switch from SKFBSS '19 to
SKFBSS '18 or '20
SKF’s 2020s and 2018s offer attractive value relative to the rating (‘BBB+’ NO and ‘Baa1’ S) Downgrade seems priced in already
Sector spread Switch from VLVY '19 to
METSO '19
Metso trading wider than ‘BBB’ rating suggests. Metso 19s offer substantial pick-up to Volvo’s 19s (neg outlook).
Outright EWOSAS '20 Mispriced due to lack of understanding of business model
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Selected charts
iTraxx (Europe) vs CDX (US) Investment grade corporate yields
Source: Bloomberg, Danske Bank Markets Source: Bloomberg, Danske Bank Markets
Nordic corporates vs iTraxx Nordic banks 5Y CDS spreads
Source: Bloomberg, Danske Bank Markets Source: Bloomberg, Danske Bank Markets
Corporate BBB bond yield vs EuroSTOXX dividend yield 3M Libor OIS spreads
Source: Bloomberg, Danske Bank Markets Source: Bloomberg, Danske Bank Markets
Financials spread vs non-financials (Industrials), A-rated
Source: Bloomberg, Danske Bank Markets
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Europe fund flows Sweden fund flows Norway fund flows
Source: Macrobond Source: Macrobond Source: Macrobond
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Recently published research
MREL is not going to cure the headache caused by TLAC - Credit Update, 1 December 2014
EBA has released a consultation paper on MREL (Minimum Requirement for Eligible Liabilities).
Unfortunately, it did not provide clarity on which instruments will be eligible for MREL. Therefore, we do not
expect it to bring relief to the Tier-2 market following the proposed TLAC (Total Loss Absorbing Capacity)
three weeks ago.
Stena Q3 14 - Credit Update, 1 December 2014
Stena delivered a decent Q3 14 with a healthy 8% increase in EBITDA y/y. Debt metrics weakened
moderately due to explainable factors. We expect moderately stronger cash flows and a stronger liquidity
profile over the coming years. We continue to believe that Stena is well anchored in the BB corporate credit
rating category. The bonds and CDSs are priced attractively. We reiterate our Buy recommendation.
Sognekraft - Issuer profile, 1 December 2014
Sognekraft is a Norwegian utility based in the western part of Norway. It is a local player, with some
575GWh of annual production based on hydropower capacity. The group has 88 employees and operates
some 1,800km of power distribution networks and supplies around 350GWh of electricity to residential and
business clients. We assign a ‘BBB-‘ stand-alone indicative rating to Sognekraft. This is based on our view
of Sognekraft's business risk as ‘satisfactory' and its financial risk as ‘significant'. We add one notch due to
our assumption of owner support, arriving at an indicative issuer and issue rating of ‘BBB‘.
Heimstaden Q3 14 – Credit update, 2 December 2014
Heimstaden presented a stable performance in Q3, with 5% growth in the operating net result on a like-for-
like basis. At end-September, Heimstaden's gross loan-to-value ratio was a sound 57%. As the company has
recently acquired three property portfolios, leverage is set to rise in the coming quarters. We maintain our
view of the company as a ‘BB' credit with stable outlook, with the bonds one notch lower at ‘BB-'. This
credit view assumes that the company pursues a disciplined M&A strategy, with a loan-to-value ratio below
65% and an interest coverage of around 1.5x.
Stena Q3 14 investor call – Credit Update, 3 December 2014
We participated in Stena's Q3 14 investor conference call yesterday. We expect slightly stronger cash flows and
a stronger liquidity profile over the coming years. We continue to believe that Stena is a ‘BB’ corporate credit.
The bonds and CDSs are priced attractively. We reiterate our Buy recommendation.
EWOS: Credit research report, 3 December 2014
EWOS is a market leader in a highly consolidated salmon feed industry. The salmon farming industry has
historically experienced rapid growth and we forecast further growth going forward (though probably at low-to-
moderate levels in the medium term). We do not expect further margin pressure for EWOS due to high industry
consolidation and its cost-plus model. Earnings for 2013-14 are affected by separating EWOS from Cermaq and
non-recurring issues and should improve going forward. While interest coverage is low, we estimate a positive
and gradually increasing free cash flow from 2015 onwards. We regard the recent sell-off in the notes as an
attractive entry point.
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Ratings from Standard & Poor’s, Moody’s and Fitch and Danske Bank markets shadow ratings
Source: Standard & Poor’s, Moody’s, Fitch, Danske Bank Markets
Analyst(s)
Company Rating Outlook Sr. Unsec Rating Outlook Rating Outlook Rating OutlookAhlstrom Oyj B+ Stable Mads RosendalAkelius Residential Ab BB+ Pos BB Louis LandemanAmbu A/S BBB- Stable Jakob MagnussenAp Moeller - Maersk A/S BBB+ Stable Baa1 Stable Brian Børsting BUYArla Foods Amba BBB+ Stable Mads RosendalAtlas Copco Ab A Stable A2 Stable Mads Rosendal SELLAvinor As AA- Stable A1 Stable Ola Heldal HOLDBank 1 Oslo Akershus As BBB+ Stable T. Hovard / L. HolmBank Norwegian As BBB Stable T. Hovard / L. HolmBeerenberg Holdco Ii As B+ Stable Øyvind MossigeBw Offshore BB+ Stable Øyvind MossigeCargotec Oyj BBB- Stable Mads RosendalCarlsberg Breweries A/S Baa2 Stable BBB Stable Brian Børsting SELLCermaq Asa BB Stable Knut-Ivar BakkenCitycon Oyj BBB Stable Baa2 Stable Louis LandemanColor Group As BB- Stable B+ Niklas RipaCom Hem Holding Ab BB- Stable Ola HeldalDanfoss A/S BBB Stable Jakob MagnussenDanske Bank A/S A Neg A3 Stable A StableDfds A/S BBB- Stable Brian BørstingDlg Finance As BB- Stable Mads RosendalDna Ltd BBB- Stable Ola HeldalDnb Bank Asa A+ Stable A1 Neg T. Hovard / L. Holm HOLDDong Energy A/S BBB+ Stable Baa1 Stable BBB+ Stable Jakob Magnussen HOLDDsv A/S BBB Stable Brian BørstingEg Holding B Stable Jakob MagnussenEika Boligkreditt As A- Stable T. Hovard / L. HolmEika Gruppen As BBB Stable T. Hovard / L. HolmElectrolux Ab BBB Stable Wr WD Brian Børsting HOLDElisa Oyj BBB Pos Baa2 Stable Ola Heldal BUYEntra Eiendom As A- Stable Ola HeldalFarstad Shipping Asa BB Neg BB- Øyvind MossigeFingrid Oyj A+ Stable A1 Stable A+ Stable Jakob Magnussen BUYFinnair Oyj BB Stable Brian BørstingFortum Oyj A- Neg A2 Neg A- Neg Jakob Magnussen SELLFortum Varme Holding Samagt Med Stockholms Stad Ab BBB+ Stable Jakob MagnussenFred Olsen Energy Asa BB+ Neg Sondre StormyrG4S Plc BBB- Stable Brian Børsting BUYGetinge Ab BB+ Neg Louis LandemanGolden Close Maritime Corp Ltd B Sondre StormyrHeimstaden Ab BB Stable BB- Louis LandemanHemso Fastighets Ab BBB+ Stable BBB Louis LandemanHkscan Oyj BB Stable Brian BørstingHoist Kredit Ab BB- Stable B+ Gabriel BerginHusqvarna Ab BBB- Pos Louis LandemanIkano Bank Ab BBB Stable T. Hovard / L. HolmInvestor Ab AA- Stable A1 Stable Brian Børsting BUYIss A/S BBB- Stable Brian Børsting HOLDJ Lauritzen A/S B Stable B- Bjørn Kristian RøedJernhusen Ab A- Stable Gabriel BerginJyske Bank A/S A- Stable Baa1 Neg Thomas M. Hovard BUYKesko Oyj BBB Stable Mads RosendalKlaveness Ship Holding As BB- Stable B+ Bjørn Kristian RøedLuossavaara-Kiirunavaara Ab BBB+ Stable Louis LandemanMeda Ab BB- Stable Louis LandemanMetsa Board Oyj B+ Pos B1 Pos Mads RosendalMetso Oyj BBB Stable Baa2 Stable Mads Rosendal HOLDNcc Ab BBB- Stable Louis LandemanNeste Oil Oyj BBB- Stable Jakob Magnussen HOLDNokia Oyj BB Pos Ba2 Pos BB Stable Ola Heldal HOLDNokian Renkaat Oyj BBB+ Stable Jakob MagnussenNordea Bank Ab AA- Neg Aa3 Neg AA- Stable T. Hovard / L. Holm SELLNorth Atlantic Drilling Ltd BB Stable BB- Sondre StormyrNorwegian Air Shuttle Asa BB- Stable B+ Brian BørstingNorwegian Property Asa BBB- Stable Ola HeldalNykredit Bank A/S A+ Neg Baa2U Stable A Stable T. Hovard / L. Holm HOLDNynas Group B+ Stable B+ Jakob MagnussenOdfjell Se B+ Stable B Bjørn Kristian RøedOlav Thon Eiendomsselskap Asa BBB+ Stable Ola HeldalOlympic Shipping As B+ Stable B Øyvind MossigeOrkla Asa BBB+ Pos Ola Heldal
S&P Moody's FitchDanske Bank Recomm.
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Ratings from Standard & Poor’s, Moody’s and Fitch and Danske Bank markets shadow ratings
Source: Standard & Poor’s, Moody’s, Fitch, Danske Bank Markets
Analyst(s)
Company Rating Outlook Sr. Unsec Rating Outlook Rating Outlook Rating OutlookOutokumpu Oyj B Pos Mads RosendalPohjola Bank Oyj AA- Neg Aa3 Neg A+ Stable T. Hovard / L. Holm SELLPosten Norge As A- Stable Ola HeldalPostnord Ab BBB+ Stable Gabriel BerginProsafe Se BB Stable Sondre StormyrRamirent Oyj BB+ Stable Brian BørstingSaab Ab BBB+ Stable Wr Louis LandemanSampo Oyj Baa2 Stable T. Hovard / L. Holm HOLDSandnes Sparebank BBB+ Stable T. Hovard / L. HolmSandvik Ab BBB Neg Mads Rosendal HOLDSas Ab B- Stable Wr Pos Brian BørstingSbab Bank Ab A Neg A2 Neg T. Hovard / L. Holm HOLDScania Ab A- Stable Mads Rosendal HOLDSchibsted Asa BBB Stable Ola HeldalSeadrill Ltd BB+ Stable BB Sondre StormyrSecuritas Ab BBB Stable Wr Brian Børsting HOLDSkandinaviska Enskilda Banken Ab A+ Neg A1 Neg A+ Pos T. Hovard / L. Holm BUYSkanska Ab BBB+ Stable Louis LandemanSkf Ab BBB+ Neg Baa1 Stable Mads Rosendal SELLSolstad Offshore Asa BB- Stable B+ Øyvind MossigeSpar Nord Bank A/S BBB+ Stable T. Hovard / L. HolmSparebank 1 Boligkreditt As A- Stable Lars HolmSparebank 1 Nord Norge A2 Neg A Stable T. Hovard / L. Holm HOLDSparebank 1 Smn A2 Neg A- Stable T. Hovard / L. Holm HOLDSparebank 1 Sr-Bank Asa A2 Neg A- Stable T. Hovard / L. Holm HOLDSponda Oyj BBB- Stable Louis LandemanSt1 Nordic Oy BB Stable Jakob MagnussenStatkraft Sf A- Stable Aaa Stable Jakob Magnussen BUYStatnett Sf A+ Stable Wr Stable Jakob Magnussen HOLDStatoil Asa AA- Stable Aa2 Stable Jakob Magnussen SELLSteen & Strom As BBB+ Stable Ola HeldalStena Ab BB Stable B2 Stable Brian Børsting BUYStockmann Oyj Abp B+ Stable Mads RosendalStolt-Nielsen Ltd BB+ Stable BB Bjørn Kristian RøedStora Enso Oyj BB Stable Ba2 Stable WD Mads Rosendal HOLDStorebrand Bank Asa BBB+ Stable BBB+ Neg Baa1 Neg T. Hovard / L. HolmSuomen Hypoteekkiyhdistys A- Stable T. Hovard / L. HolmSwedavia Ab A- Stable Gabriel BerginSwedbank Ab A+ Neg A1 Neg A+ Pos T. Hovard / L. Holm BUYSwedish Match Ab BBB Stable Baa2 Stable Brian Børsting HOLDSvensk Fastighetsfinansiering Ab BBB Stable Louis LandemanSvenska Cellulosa Ab Sca A- Stable Baa1 Stable Mads Rosendal BUYSvenska Handelsbanken Ab AA- Neg Aa3 Neg AA- Stable T. Hovard / L. Holm HOLDSydbank A/S Baa1 Neg T. Hovard / L. Holm BUYTallink Group As BB Stable BB- Jakob MagnussenTdc A/S BBB Neg Baa3 Stable BBB Stable Ola Heldal HOLDTeekay Offshore Partners Lp BB- Stable B+ Bjørn Kristian RøedTele2 Ab BBB Stable Ola HeldalTelefonaktiebolaget Lm Ericsson BBB+ Stable Baa1 Stable BBB+ Neg Ola Heldal HOLDTelenor Asa A Stable A3 Stable Ola Heldal HOLDTeliasonera Ab A- Stable A3 Neg A- Stable Ola Heldal SELLTeollisuuden Voima Oyj BBB Neg Wr BBB Stable Jakob Magnussen BUYThon Holding As BBB+ Stable Ola HeldalTine Sa BBB+ Stable Ola HeldalUpm-Kymmene Oyj BB+ Stable Ba1 Stable WD Mads Rosendal HOLDVasakronan Ab A- Stable Louis LandemanVattenfall Ab A- Stable A3 Stable A- Neg Jakob Magnussen HOLDVestas Wind Systems A/S BBB- Pos Niklas Ripa BUYVictoria Park Ab BB- Stable B+ Louis Landeman
Danske Bank S&P Moody's Fitch Recomm.
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Jakob Magnussen
Utilities, Energy (+45) 45 12 85 03 [email protected]
Knut-Ivar Bakken
Fish farming (+47) 85 40 70 74 [email protected]
Øyvind Mossige
Oil services (+47) 85 40 54 91 [email protected]
Ola Heldal
TMT (+47) 85408433 [email protected]
Henrik René Andresen
Credit Portfolios (+45) 45 13 33 27 [email protected]
Brian Børsting
Industrials (+45) 45 12 85 19 [email protected]
Mads Rosendal
Industrials, Pulp & Paper (+45) 45 14 88 79 [email protected]
Lars Holm
Financials (+45) 45 12 80 41 [email protected]
Fixed Income Credit Research
Louis Landeman
TMT, Industrials (+46) 8 568 80524 [email protected]
Thomas Hovard
Head of Credit Research (+45) 45 12 85 05
Find the latest Credit Research
Danske Bank Markets: Bloomberg: http://www.danskebank.com/danskemarketsresearch DNSK<GO>
Gabriel Bergin
Strategy, Industrials (+46) 8 568 80602 [email protected]
Niklas Ripa
High Yield, Industrials (+45) 45 12 80 47 [email protected]
Bjørn Kristian Røed
Shipping (+47) 85 40 70 72 [email protected]
Sondre Dale Stormyr
Offshore rigs (+47) 85 40 70 70 [email protected]
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Disclosures This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S (‘Danske
Bank’). The author of the research report is Brian Børsting, Senior Analyst.
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research report accurately reflect the research analyst’s personal view about the financial instruments and issuers
covered by the research report. Each responsible research analyst further certifies that no part of the compensation
of the research analyst was, is or will be, directly or indirectly, related to the specific recommendations expressed
in the research report.
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