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Contrasting Fortunes

06 June 2017 by lberuti

Yesterday, MTNLN (Matalan Finance Plc) released numbers which were in line with analysts’ expectations and teased investors with some bonds buy-back. The positive sentiment benefitted the whole retail sector to a certain extent, and NEWLOK (New Look Senior Issuer Plc) saw its risk premium tighten roughly 40bps. But the reprieve was short lived and people were brought back to the harsh retailer’s reality when the company reported much weaker than expected fourth quarter results. Like for like sales are still under pressure, the cost base is on the rise on the back of a growing store estate, higher marketing costs and deteriorating operating leverage. NEWLOK, which sells fashion mainly for women and teenage girls, also warned of challenging times ahead as online competition increases and shoppers seek instant gratification, which “challenges (the company) to be even faster in identifying and responding to trends, buying with more conviction and becoming ever more agile”. When the numbers came out in the morning, the 5-year risk premium jumped 8 upfront points to 33pts upfront + 500bps running. In the afternoon, NEWLOK’s management organised a call with analysts which eventually did nothing to alleviate investors’ fear. It resulted in another 7pts widening of the 5-year risk premium, which means an almost certain default within the next 5 years – the default probably stands above 80% over the next 5 years -.