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Outlook Unchanged

11 July 2019 by jbchevrel

Suedzucker (SZUGR) CDS underperformed the EUR HY space today, with the 5y spread going wider +4bp while CrossOver fair value is about flat. Intra-day SZUGR was even +7 vs XO FV -3. The European sugar company printed EBIT at €47m, which is down -40% YoY, but still ahead of the consensus number of -€15m. The Sugar division keeps losing traction and weighing at a group level, generating an EBIT of -€36m which is to be compared with +€8m in the same period last year. Other divisions saw their margin increase, measured by EBIT (Special products & CropEnergies) or stagnate (Fruit). As far as cash flow, FCF came €22m after dividends, affected negatively by both lower earnings and higher capital expenditure. Against that backdrop, the group’s net debt was stable, a tad up (+€111m) to a total €1.2b, largely the impact of the IFRS-16 enforcement. Although that looks like a beat for this quarter, the fact that management didn’t change its outlook explains the underperformance today. The stock also opened -4% on Xetra, before paring most of that move. Indeed, the Baa3n/BBB-n rated company confirmed its outlook for this fiscal year, with revenues keeping the range of [€6.7b,€7.0b] and consistently EBIT staying in [0-€100m]. This is despite a stabilization in sugar prices, as indeed EU white sugar prices seem to have found a floor above €300 per metric tonne in the first half of this year. Elsewhere it was a session marked by rates selling off aggressively in the belly of the DM curves (10y Bund +8bp 10y UST +7bp 10y Gilt +8bp), preventing risk to rally much further (SPX back to 2,990 SX5E closed below 3,500).