20180629-法国巴黎银行-Sell_CCOLAT__4.215_24_7页_614kb

Summary of Document: Sell CCOLAT 4.215% 24

Core Content

This document provides an analysis and recommendation regarding the credit risk and investment outlook for Coca-Cola Icecek (CCOLAT), specifically the 4.215% 2024 bond. The key focus is on the credit spread performance, free cash flow (FCF) trends, foreign exchange (FX) exposure, and operational performance of the company. The recommendation is to sell the bond at a specific price and spread.

Key Information

1. Credit Spread Performance

• CCOLAT 4.215% 24 has experienced limited repricing despite recent pressure on credit spreads in Turkey.
• It has outperformed other EM Coca Cola bottlers:
  • Andina (ANDINA) in Chile (BBB+/BBB)
  • Femsa (KOF) in Mexico (A2/A-/A-)
• The bond now trades at 129bp through TURKEY $7.375% 25, which is a historical low since its issuance in September 2017.
• The limited spread movement is attributed to:
  • Wider sovereign spreads due to political uncertainty
  • Strong financial performance and FCF generation by CCI over the past two years
  • Perceived defensiveness of the credit, including potential support from Coca Cola Company (untested)

2. Investment Recommendation

• Recommendation: Sell CCOLAT 4.215% 24 at $92.750, with a yield of 5.61% and a z spread of 274.8bp.
• The outlook for CCI is less positive, with weak Q2 results expected in August.

3. Free Cash Flow (FCF) Profile

• CCI's FCF generation has improved significantly over the last two years due to:
  • Reduced capital expenditure (capex)
  • Lower net working capital (NWC)
• However, the FCF improvement is expected to stall in 2018 due to:
  • Higher capex needs
  • Increased NWC requirements
• Chart 4 illustrates the anticipated deterioration in the FCF profile.

4. FX Exposure

• CCI maintains an open FX position of $690mn (after hedges) as of Q118.
• The depreciation of the Turkish Lira against the US Dollar is expected to:
  • Put pressure on operating margins
  • Create a significant non-cash FX loss
• This is likely to result in a downgrade of the TRY409mn net income consensus for 2018, moving closer to TRY226mn.

5. Operating Performance

• CCI reported a strong EBITDA margin of 14.7% for Q118, which is 240bp higher yoy.
• However, Q218 performance is expected to deteriorate, influenced by:
  • Currency depreciation in Turkey and Pakistan
  • These two markets account for 75% of total sales volumes
• Q1 is a seasonally weak period, contributing only 10% of annual EBITDA.

6. M&A Risk

• CCI's business model is based on continued expansion in Central Asia and the Middle East, including opportunistic acquisitions.
• There is no immediate update on any such activities, indicating a potential risk in the M&A strategy.

Main Views

• The credit risk of CCOLAT is currently lower than that of other EM Coca Cola bottlers.
• Despite strong recent performance, the future outlook is cautious, with reduced FCF generation and FX losses expected.
• The operational performance is likely to deteriorate in Q218 due to currency effects and seasonal trends.
• The M&A strategy is a key growth driver, but there is no recent activity, which could impact future growth.

Legal and Regulatory Disclaimers

• This document is not a research report and is not objective or unbiased.
• It is intended for Relevant Persons as defined under MiFID II and other regulatory frameworks.
• It does not constitute investment advice, and no liability is accepted for any losses arising from reliance on the document.
• It is not directed at retail clients in various jurisdictions, including Australia, China, India, Indonesia, Japan, Malaysia, and South Africa.
• The author may have proprietary positions in the instruments discussed, and Sales and Trading personnel are indirectly compensated based on transaction size and volume.

Conclusion

The document concludes with a Sell recommendation for CCOLAT 4.215% 24, citing weak future performance, FX exposure, and potential FCF decline as key concerns. Investors are advised to act based on their own analysis and not rely solely on the views expressed in the document.