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Investment Research — General Market Conditions
Headlines
Emerging market turbulence continues adding to the gloom.
DONG Energy equity sale and capital injection approved.
Good start to 2014 with healthy levels of new issue volumes.
Market commentary
Risk aversion continued to be at the top of investors’ minds this week as emerging market
jitters continued late this week with a USD10bn Fed tapering and disappointing Chinese
PMI falling below the important 50 mark. Scandi credit markets were hit by investors
offloading longer maturity corporate bonds, in particular, having entered 2014 with too long
exposure. However, credit indices tightened towards the end of the week with the iTraxx
Europe trending back towards the 80bp level. Also, the Crossover index tightened albeit
under high volatility. Still, risk appetite remains high and new issue spreads remain tight.
New issuance volumes stayed at a healthy level with new EUR-denominated corporate
issues in January 2014 of EUR27.6bn largely unchanged relative to January 2013.
The long-awaited equity sale of part of the Danish utility DONG Energy to Goldman
Sachs and Danish pension funds ATP and PFA was approved by parliament only after an
intense political row resulting in the Socialist People’s Party dropping out of government.
While the utility is now set to bolster its balance sheet, credit investors were broadly
surprised by the political turmoil caused by the transaction.
Issuance activity continued at a healthy pace this week across financials and corporate as
liquidity and investor appetite remains high. French telecom operator Orange issued a
EUR1.0bn perpetual and in the high-yield segment the ‘BB+’ rated healthcare company
Fresenius placed a EUR300m 4% fixed rate 10-year bond at an issue spread of 232bp.
Also, National Grid and Volkswagen tapped primary markets, with the latter issuing both
a SEK1.0bn bond and a EUR50m short-term note.
Selected new issues during the week
Name Rating Coupon* Maturity Currency Size Spread/YTM
Orange Baa3 Perp - EUR 1.0bn - Fresenius FIN Ba1/BB+ Fixed 10Y EUR 300m 232bp CEZ NR/BB Zero 4Y EUR 470m - National Grid Baa1/A- Fixed 5Y EUR 300m 94bp Volkswagen A3/A- FRN 3Y SEK 1.0bn - Volkswagen A3/A- FRN 1Y EUR 50m -
Notes: Ratings are Moody’s and Standard & Poor’s corporate/bank ratings (i.e. not issue ratings, which can
be lower); mid-swaps for fixed, discount margin for floating
* Spread over government reference rate
Source: Informa Global Markets, Bloomberg, Danske Bank Markets
31 January 2014
Analyst Kasper From Larsen +45 45 12 80 47 [email protected]
Weekly Credit Update
iTraxx Europe (investment grade)
Source: Bloomberg, Danske Bank Markets
iTraxx Crossover (high yield)
Source: Bloomberg, Danske Bank Markets
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EUR 5Y corporate benchmarks yields EUR investment grade spreads (ASW)
Source: Macrobond, Danske Bank Markets Source: Macrobond, Danske Bank Markets
ML EUR High Yield Index ML EUR High Yield Cash Indices
Source: Macrobond, Danske Bank Markets Source: Macrobond, Danske Bank Markets
Nordic banks 5Y CDS spreads 3M LIBOR-OIS spread
Source: Danske Bank Markets Source: Macrobond, Danske Bank Markets
20
40
60
80
100
120
140
160
nov-12 jan-13 mar-13 maj-13 jul-13 sep-13
bp Danske Bank Nordea DNB
SEB Handelsbanken Swedbank
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Weekly Credit Update
Recently published research
Credit Update Electrolux Q4 13 – HOLD
Electrolux’s Q4 13 operating income was weaker than expected and 23% lower than in
Q4 12 (after adjusting for non-recurring items). Europe continues to be the main earnings
drag, while the US recorded a solid margin increase y/y aided by a recovering housing
market. Leverage trended down on the back of a decent cash flow, which should take
away some pressure from the negative outlook on the group’s ‘BBB+’ rating from S&P.
We maintain our HOLD recommendation.
Credit Update Ericsson Q4 13 – HOLD
Despite an underlying sales decline, Ericsson delivered earnings growth in Q4 13, driven
primarily by cost-reduction measures and a favourable European mix. However, the
outlook remains relatively sluggish. We have concerns that the revenue deceleration
reflects a slowdown in new orders rather than being a result of pure price-based
competition. This could potentially result in renewed margin pressure and credit metric
deterioration. However, credit metrics are currently cushioned by the company’s strong
cash position. We reiterate our HOLD recommendation.
Credit Update TeliaSonera Q4 13 – SELL
TeliaSonera reported a slightly downbeat set of Q4 13 results, with both the Mobile and
Broadband divisions showing slowing growth across most markets. In particular, Sweden
and Spain disappointed. Intense competition in the public sector hurt the Swedish
business-to-business market and defensive market share action materially hampered
profitability in the Spanish Mobile division. Also, cash repatriation from Kazakhstan
remains uncertain and the dividend payout ratio was raised to 61% (up from 58%).
Moreover, we consider a heightened risk of the company engaging in selective M&A
activity. Coupled with the current tight bond spreads, we reiterate our SELL
recommendation.
Credit Update Atlas Copco Q4 13 – SELL
Atlas Copco presented Q4 13 results slightly below consensus. The operating margin was
negatively affected by lower volumes in mining as well as by adverse currency effects
and dilution from acquisitions. Leverage fell on the back of a decent operating cash flow
and the group’s strong credit metrics leave ample financial headroom. Still, Atlas Copco’s
bonds trade on the tight side, in our view, and we do not see a rating upgrade on the
horizon. We maintain our SELL recommendation.
Credit Update UPM Q4 13 – HOLD
UPM presented stable Q4 13 results. Sales were ahead but earnings were slightly behind
Bloomberg consensus. Compared with the same period in 2013, Biorefining and Plywood
improved earnings but the Energy division declined due to lower hydropower volumes.
Leverage fell on the back of strong cash flow and UPM’s metrics are well in line with its
‘BB’ rating. We continue to see the 5Y CDS on UPM as being fairly priced and maintain
our overall HOLD recommendation.
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Weekly Credit Update
Credit Update SCA Q4 13 – SELL
SCA reported Q4 13 numbers that beat Bloomberg consensus on earnings but were
somewhat behind on revenues. Profitability improvements were attributed mainly to cost
savings and higher volumes in the Tissue division. As a result of the Vinda acquisition,
net debt increased by around SEK2.7bn q/q but metrics are still strong for the ‘BBB+’
rating from S&P. However, due to the tight valuation, we see limited upside in the name
and we maintain our Sell recommendation.
Credit Update Scania Q4 13 – HOLD
Boosted by pre-ordering, Scania delivered a record quarter in terms of revenues but
operating profit was held back somewhat by negative currency effects and a more
competitive pricing environment. From a credit perspective, the report looks good and
Scania is now back in net cash territory after adjusting for off-balance sheet items. We see
limited upside potential in the name but decent carry, which is why we maintain our
HOLD recommendation.
Credit Update Nordea Q4 13 – SELL
Nordea’s Q4 report revealed little news with most items in line with consensus and a miss
on trading. We maintain our SELL recommendation due to a tight valuation.
Credit Update SKF Q4 13 – BUY
SKF presented good Q4 13 results. One-off items significantly impaired earnings but,
adjusting for these, the trend, in our view, is generally positive. As expected, debt
increased significantly from the acquisition of Kaydon but SKF has already been
downgraded by S&P and Moody’s as a consequence. We see an attractive valuation
relative to the rating and upgrade our recommendation from SELL to BUY.
Credit Update Swedbank Q4 13 – BUY
Headlines were a bit mixed but underlying results adjusted for one-offs showed a good
performance. The bank is in very good shape. We keep our BUY recommendation.
Credit Update Getinge Q4 13
While Getinge’s Q4 revenue growth remained weak, order intake rose compared with the
previous quarter. Even though Getinge has a good record of reducing leverage follwoing
completed deals, we stress that the company has very limited headroom to take on
additional debt within the current rating. Assuming that Getinge will demonstrate a steady
performance – and that the company will present some additional cost savings in Q2 – we
maintain our ‘BBB-’ credit view with a stable outlook.
Credit Update NCC Q4 13
NCC reported a good set of results for Q4 13. Net sales were up by 11% compared with
the previous year, which can be attributed partly to strong results from NCC Property
Development. On the negative side, order intake was down in the quarter, driven mainly
by weak numbers from the important unit Construction Sweden, which continues to be a
sore spot. Cash flow proved strong in the quarter and the balance sheet strengthened due
to an increased cash position. We maintain our view of NCC as a ‘BBB-’ credit with
stable outlook.
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Weekly Credit Update
Issuer Profile Steen & Strøm AS
We assign a ‘BBB+’ issuer credit rating to Steen & Strøm AS. The rating is supported by
the company’s strong shopping mall portfolio in Scandinavia, with a low-risk asset
profile, stable rent level and low vacancy rate. We also consider the ownership support of
the French shopping mall operator Klépierre to be a strong positive contributing factor in
the rating consideration. Weighing on the rating is a moderate share of development
activity including some new construction projects. Steen & Strøm’s financial risk profile
on a stand-alone basis is also characterised as significant to aggressive, with an LTV
around 55%, debt to EBITDA of 13x and interest coverage around 2x. Secured issues are
notched up one notch from the issuer rating to ‘A-’.
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Weekly Credit Update
Ratings from Standard & Poor’s, Moody’s and Fitch and Danske Bank Markets’ shadow ratings
Source: Standard & Poor’s, Moody’s, Fitch, Danske Bank Markets
Ratings from S&P/Moody's/Fitch and Danske Bank Markets shadow ratings
Analyst(s)
Company Rating Outlook Sr. Unsec Rating Outlook Rating Outlook Rating OutlookAkelius Fastigheter Ab BB+ Pos BB Louis LandemanAmbu A/S BBB- Stable Jakob MagnussenAp Moeller - Maersk A/S BBB+ Stable Baa1 Stable Brian Børsting BUYArla Foods Amba BBB+ Stable Mads RosendalAtlas Copco Ab A Stable A2 Stable Mads Rosendal SELLAvinor As AA- Stable A1 Stable Åse Haagensen HOLDBwg Homes Asa BB Stable BB- Nils AspeliCarlsberg Breweries A/S Baa2 Stable BBB Stable Brian Børsting SELLColor Group As BB- Stable B+ Kasper F. LarsenDanske Bank A/S A- Stable Baa1 Pos A StableDlg Finance As BB- Stable Mads RosendalDfds A/S BB+ Stable Kasper F. LarsenDna Ltd BBB- Stable Kasper F. LarsenDnb Bank Asa A+ Stable A1 Stable T. Hovard / L. Holm HOLDDong Energy A/S BBB+ Neg Baa1 Stable BBB+ Neg Jakob Magnussen BUYDsv A/S BBB Stable Brian BørstingEg Holding B Stable Jakob MagnussenElectrolux Ab BBB+ Neg Wr WD Brian Børsting HOLDElisa Oyj BBB Stable Baa2 Stable Louis Landeman BUYFinnair Oyj BB Stable Brian BørstingFingrid Oyj AA- Stable A1 Stable A+ Stable Jakob Magnussen BUYFortum Oyj A- Neg A2 Neg A- Neg Jakob Magnussen SELLFred Olsen Energy Asa BB+ Stable Åse HaagensenG4S Plc BBB- Stable Brian Børsting BUYGetinge Ab BBB- Stable Louis LandemanHemso Fastighets Ab BBB+ Stable Wiveca SwartingHusqvarna Ab BBB- Stable Louis LandemanInvestor Ab AA- Stable A1 Stable Brian Børsting BUYIss A/S BB Pos B1 Pos Brian Børsting HOLDJernhusen Ab A- Stable Gabriel BerginJ Lauritzen A/S B Stable B- Åse HaagensenJyske Bank A/S A- Stable Baa1 Stable Thomas M. Hovard BUYKesko Oyj BBB Stable Mads RosendalMeda Ab BB Stable Louis LandemanMetso Oyj BBB Stable Baa2 Neg Mads Rosendal BUYMjolby-Svartadalen Energi Ab BBB+ Watch Louis LandemanNcc Ab BBB- Stable Louis LandemanNeste Oil Oyj BBB- Stable Jakob Magnussen HOLDNokia Oyj B+ B1 Develop BB- Louis Landeman HOLDNokia Siemens Networks Finance Bv B1 Louis Landeman HOLDNokian Renkaat Oyj A Stable Jakob MagnussenNordea Bank Ab AA- Neg Aa3 Stable AA- Stable T. Hovard / L. Holm SELLNorth Atlantic Drilling Ltd BB Stable BB- Åse HaagensenNorwegian Property Asa BBB- Stable Nils AspeliNykredit Bank A/S A+ Neg Baa2U Neg A Stable T. Hovard / L. Holm BUYOdfjell Se B+ Stable B Bjørn Kristian RøedOlav Thon Eiendomsselskap Asa BBB+ Stable Nils AspeliOutokumpu Oyj B- Pos Mads RosendalOrkla Asa BBB+ Pos Nils AspeliPohjola Bank Plc AA- Neg Aa3 Stable A+ T. Hovard / L. Holm SELLPostnord Ab BBB+ Stable Gabriel BerginProsafe Se BB Stable Åse HaagensenRamirent Oyj BB+ Stable Brian BørstingSaab Ab BBB+ Stable Wr Wiveca SwartingSampo Baa2 Stable T. Hovard / L. Holm HOLDSandnes Sparebank BBB+ Stable T. Hovard / L. Holm HOLDSandvik Ab BBB Mads Rosendal HOLDSas Ab B- Stable Wr Pos Brian BørstingSbab Bank Ab A Neg A2 T. Hovard / L. Holm HOLDScania Ab A- Pos Mads Rosendal HOLDSchibsted Asa BBB Stable Nils AspeliSeadrill Ltd BB+ Stable BB Åse HaagensenSecuritas Ab BBB Stable Wr Brian Børsting HOLDSkandinaviska Enskilda Banken Ab A+ Neg A1 Stable A+ Stable T. Hovard / L. Holm BUYSkanska Ab BBB+ Stable Louis LandemanSkf Ab BBB+ Stable Baa1 Stable Mads Rosendal BUYSparebank 1 Nord Norge A2 Stable A Stable T. Hovard / L. Holm HOLDSparebank 1 Smn A2 Stable A- Stable T. Hovard / L. Holm HOLDSparebank 1 Sr Bank Asa A2 Stable A- Stable T. Hovard / L. Holm HOLDSpar Nord Bank A/S BBB+ Stable T. Hovard / L. HolmSponda Oyj BBB- Stable Louis LandemanStatkraft Sf A- Stable Aaa Stable Jakob Magnussen BUYStatnett Sf A+ Stable Wr Stable Jakob Magnussen HOLDStatoil Asa AA- Stable Aa2 Stable Jakob Magnussen SELL
Recomm.S&P Moody's FitchDanske Bank
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Ratings from Standard & Poor’s, Moody’s and Fitch and Danske Bank Markets’ shadow ratings
Source: Standard & Poor’s, Moody’s, Fitch, Danske Bank Markets
Ratings from S&P/Moody's/Fitch and Danske Bank Markets shadow ratings
Analyst(s)
Company Rating Outlook Sr. Unsec Rating Outlook Rating Outlook Rating OutlookStena Ab BB Stable B2 Stable Brian Børsting BUYStockmann Oyj Abp BB- Stable Mads RosendalStolt-Nielsen Ltd BB+ Stable BB Bjørn Kristian RøedStora Enso Oyj BB Stable Ba2 Neg BB- Stable Mads Rosendal SELLSuomen Hypoteekkiyhdistys A- Stable T. Hovard / L. HolmSwedavia Ab A- Stable Gabriel BerginSwedbank Ab A+ Stable A1 Stable A+ Stable T. Hovard / L. Holm BUYSwedish Match Ab BBB Stable Baa2 Stable Brian Børsting HOLDSvenska Cellulosa Ab Sca BBB+ Pos Baa1 Stable Mads Rosendal SELLSvensk Fastighetsfinansiering Ab BBB Stable Louis LandemanSvenska Handelsbanken Ab AA- Neg Aa3 Stable AA- Stable T. Hovard / L. Holm HOLDSydbank A/S Baa1 Stable T. Hovard / L. Holm HOLDTallink Group As BB Stable BB- Jakob MagnussenTalvivaara Mining Co Plc C Mads RosendalTdc A/S BBB Pos Baa2 Stable BBB Stable Louis Landeman BUYTeekay Offshore Partners Lp BB- Stable B+ Kasper F. LarsenTele2 Ab BBB Stable Louis LandemanTelefonaktiebolaget Lm Ericsson BBB+ Neg A3 Neg BBB+ Neg Louis Landeman HOLDTelenor Asa A- Pos A3 Stable Louis Landeman HOLDTeliasonera Ab A- Stable A3 Stable A- Stable Louis Landeman SELLTeollisuuden Voima Oyj BBB Stable Wr BBB Stable Jakob Magnussen BUYThon Holding As BBB+ Stable Nils AspeliUpm-Kymmene Oyj BB Stable Ba1 Stable BB Stable Mads Rosendal HOLDVasakronan Ab BBB+ Stable Louis LandemanVattenfall Ab A- Stable A3 Stable A- Neg Jakob Magnussen HOLDVestas Wind Systems A/S BB+ Pos Kasper F. Larsen BUYVolvo Ab BBB Neg Baa2 Neg BBB Stable Mads Rosendal SELLWilh Wilhelmsen Asa BBB- Stable Bjørn Kristian RøedYit Oyj BB+ Neg Louis Landeman
Recomm.Danske Bank S&P Moody's Fitch
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Henrik René Andresen
Credit Portfolios (+45) 45 13 33 27 [email protected]
Brian Børsting
Industrials (+45) 45 12 85 19 [email protected]
Mads Rosendal
Industrials, Pulp & Paper (+45) 45 14 88 79 [email protected]
Lars Holm
Financials (+45) 45 12 80 41 [email protected]
Jakob Magnussen
Utilities, Energy (+45) 45 12 85 03 [email protected]
Åse Haagensen
High Yield, Industrials (+47) 22 86 13 22 [email protected]
Fixed Income Credit Research
Louis Landeman
TMT, Industrials (+46) 8 568 80524 [email protected]
Thomas Hovard
Head of Credit Research (+45) 45 12 85 05
Find the latest Credit Research
Danske Bank Markets: Bloomberg: http://www.danskebank.com/danskemarketsresearch DRCR<GO>
Gabriel Bergin
Strategy, Industrials (+46) 8 568 80602 [email protected]
Kasper From Larsen
High Yield, TMT (+45) 45 12 80 47 [email protected]
Bjørn Kristian Røed
Shipping (+47) 85 40 70 72 [email protected]
Nils Henrik Aspeli
Real Estate, Industrials (+47) 85408433 [email protected]
Wiveca Swarting
Real Estate, Construction (+46) 8 568 80617 [email protected]
Sondre Dale Stormyr
Offshore rigs (+47) 85 40 70 70 [email protected]
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Disclosures This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S (‘Danske
Bank’). The authors of this research report Kasper From Larsen, Analyst.
Analyst certification
Each research analyst responsible for the content of this research report certifies that the views expressed in the
research report accurately reflect the research analyst’s personal view about the financial instruments and issuers
covered by the research report. Each responsible research analyst further certifies that no part of the compensation
of the research analyst was, is or will be, directly or indirectly, related to the specific recommendations expressed
in the research report.
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(UK). Details on the extent of the regulation by the Financial Conduct Authority and the Prudential Regulation
Authority are available from Danske Bank on request.
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