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BNP Paribas Breakfast Brief Summary – 20 July 2018

Core Content Overview

This document provides a consolidated summary of credit-related morning comments from BNP Paribas analysts across different sectors, including Automotive, Consumers/Industrials, TMT, and Utilities/Infrastructure/Energy/Mining. It highlights key financial results, guidance updates, and market implications for several companies, alongside broader industry news.

Key Companies and Their Performance

Faurecia (BB+)

• 1H18 Results: Sales increased by +10.9% LFL to €9.0bn, with operating income up 11.1% to €647m, resulting in a margin of 7.2% (+40bp YoY).
• Organic Growth: Accelerated to +12.4% in Q2 (vs. +9.3% in Q1).
• Divisional Performance:
  • Seating: +10.8% operating income (+40bp margin)
  • Interiors: +12.5% operating income (+20bp margin)
  • Clean Mobility: +10.4% operating income (+70bp margin)
• Net Cash Flow: €247m (vs. €210m in 1H17)
• Net Debt: €465m (up from €413m at FY17)
• FY18 Guidance: Sales growth of at least 8% (vs. 7% previously), operating margin of at least 7.2% (vs. “above 7%”), and net cash flow above €500m.
• Market Reaction: Expected to be limited despite a charge of €17.2m from winding down Iran activities.

Plastic Omnium (NR)

• 1H18 Results: Economic sales down -1.9% YoY to €3.8bn, with consolidated sales down 3.0% to €3.2bn (+4.6% LFL).
• Operating Income: €324m (+3.8% YoY, margin +70bp to 10.2%)
• FCF: €109m (vs. €104m in 1H17)
• Net Debt: €992m (up from €563m at FY17 due to HBPO stake increase)
• Leverage Ratio: 1.1x (from 0.6x at FY17)
• FY18 Guidance: Capex at top end of prior range, triple-digit FCF, and "increase in revenue and results" (vs. "increase in operating margin and net result" previously).
• Strategic Move: Signed a put option with Latour Capital and Bpifrance for the sale of its Environment business, expected to close by end of 2018.

Telia (Baa1/A cwn)

• Acquisition of Bonnier: SEK 9.2bn cash and debt-free, with potential additional SEK 1bn based on performance metrics.
• Synergies: Expected to contribute SEK 600mn in 2022.
• Credit Impact:
  • Leverage is expected to rise by 0.2x in FY19, reaching 2.3x (from 1.1x in FY17).
  • Adjusted leverage could rise to 3.3x in FY19e (from 2.1x in FY17e).
• Rating Outlook:
  • S&P places Telia on Credit Watch Negative.
  • Moody's affirms the rating at Ba2 but moves outlook to Stable from Negative.
  • Possible one-notch downgrade, with a further downgrade to mid BBB if adjusted leverage exceeds 3x.
• Q2 Results:
  • Organic mobile service revenue down -2.3% YoY, driven by weakness in Denmark.
  • Organic adj. EBITDA up +3.9% YoY due to cost control and synergies.
  • FCF up +12% YoY to SEK 3.1bn.
  • Leverage remained flat at 1.14x YoY.
  • Share buyback and dividend policies unchanged.

Sky (Baa2 d/BBB d)

• Comcast Focus: Comcast has shifted focus to its recommended offer for Sky, stepping away from Fox's other assets.
• Credit Impact:
  • This move avoids a potential multi-notch downgrade to BBB.
  • Sky spreads may see some underperformance unwinding due to uncertainty over ownership and ratings.

Ericsson (Ba2/BB+)

• Moody's Outlook: Moved to Stable from Negative.
• Reasons for Stabilization:
  • Operating profit and cash flow trends expected to improve in 2018 and 2019.
  • Declining restructuring charges.
• Challenges Remain:
  • Modestly negative revenue growth in 2018.
  • Drag from Digital Services and Emerging Business divisions.
  • High exposure to wireless telecom equipment market, unlikely to grow before 2020.
  • Uncertainty around DOJ investigations into anti-corruption programs.

TDC (B1/B+ cwp)

• Credit Watch: S&P places unsecured notes on Credit Watch Positive and secured loans on Credit Watch Negative.
• Reason: Proceeds from the sale of GET to Telia could improve recovery prospects on unsecured bonds to over 70%.
• Impact: Credit investors may see a positive shift in spreads for unsecured bonds.

Vattenfall (A3/BBB+)

• H1 Results: EBITDA down 4% to SEK17,826bn.
• Divisional Performance:
  • Generation: Underlying EBITDA up 14% to SEK8,168m.
  • Wind: EBITDA up 22% to SEK3,883m.
  • Heat: EBITDA down 37% to SEK2,820m due to higher fuel costs and certain on-offs.
• Net Financial Debt: Down SEK1.5bn to SEK57.8bn.
• Adjusted Net Debt: Up SEK0.8bn to SEK125.2bn.
• FFO/Debt: Down to 19.4% from 22.3%, below target range.
• ROCE: Improved to 7.1% (towards 8% target).
• Credit Outlook: Overall soft results, but transformation out of fossil fuels and improving ESG credentials may limit market concern.

Iberdrola (Baa1/BBB+) and Enel (Baa2/BBB+)

• Strategic Interest: Both are interested in bidding for Eletrobras' power distributors Ceal and Cepisa.
• Recent Bidding: Enel won Electropaulo at 16.5x EV multiple.
• Credit Impact: Acquisitions unlikely to be significant enough to affect credit profiles, but may raise concerns about further bidding wars.

Industry News

Auto Tariffs:

• The EU is preparing for potential retaliatory tariffs if trade talks with the US fail.
• EU officials will meet with President Trump in early August.
• Two plans are under consideration: a plurilateral deal and a limited free-trade agreement.
• Probability of Tariffs: 80% according to BNP Paribas economists.
• Market Caution: Advised to remain cautious due to uncertainty.

Legal and Distribution Notes

• This document is a marketing communication for Professional Clients and Eligible Counterparties under MiFID II.
• It is not a research report and may differ from BNPP Research Department views.
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• BNPP may trade in the instruments discussed, and the commentary may reflect personal views of the authors.