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Defensive

21 April 2020 by jbchevrel

TSCO CDS entered the COVID crisis in mid 60s. It is now less than 50bp wider, ~40bp adjusting for the roll. This is comparable to what has occurred on the Main index. TSCO joined the other many € IG companies re-entering the bond market. TSCO drew large demand for a sterling bond. This is a 10-year note. TSCO got more than 3.8 billion pounds of offers vs maximum 450 million pounds. Pricing tightened -35 basis points to about 260 basis points above gilts at guidance. Flow-wise, TSCO has been helped by its return to investment-grade ratings. It was indeed upgraded to investment grade at Moody’s and S&P last year. S33 is the first series where TSCO is in Main as opposed to XO since s22. Additionally, TSCO seems well positioned to weather this coronavirus crisis, relative to other sectors, represented in the Main. TSCO’s business benefits from higher demand from consumers, given they are unable to physically go to restaurants. A rather supportive environment for TSCO credit, although earlier this month they’d defended their decision to pay a larger than expected full-year dividend. At a time when many companies have suspended them. The payout is 6.5p-a-share, so ~ £635m in total. TSCO had not paid dividends in 2016 and 2017, so the management probably wanted to send a strong signal to shareholders given that historic. TSCO was losing money in 15, around flat in 16 and 17 and came back profitable in 18 and 19. At the end of 2019 they’d £3.4b cash on balance sheet, vs £5.2 at the end of 2018, so a decent cut but they earned £2b from their operations for a Cash Flow margin of >3%.