weekly credit update - danske bank · sparebank 1 nord-norge reported a solid q1 14 with continued...
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Investment Research — General Market Conditions
Headlines
Low interest environment in Europe to continue unabated
Stable Nordic reporting season continues
Slightly subdued primary market
Higher capital requirements for Swedish Banks
Market commentary
As the outlook for eurozone inflation remained weak, at its monthly press conference on
Thursday, the ECB signalled that it would loosen monetary policy in June. Consequently,
we see no short-term end in sight to the current low yield environment, which continues
to see investors pushing down risk premiums while scrambling for returns. The highly
positive sentiment is, in our view, further underpinned by the fact that more than two-
thirds of European CCC rated corporate names now trade at or above par, which when
compared with historical default rates for the rating category (27% 1Y average
cumulative 1981-2013, according to S&P) and recovery rates (<20%) paints a clear
picture of where the market is heading. Furthermore, periphery risk premiums grinded
even tighter as the 10-year yield on Italian government bonds touched an all time low of
2.893% on Friday.
Overall, the iTraxx Main (Investment grade index) tightened some 3bp w/w landing at
+66bp. The iTraxx Crossover index (high yield index) was tighter by 12bp at +260bp.
More than halfway through, the reporting season continued with an overall positive tone,
with most Nordic corporate issuers delivering solid reports, showing good growth rates as
well as earnings improvements. In our view, the only exception was brewery group
Carlsberg, which saw sales and earnings remain under pressure from weak Ukrainian and
Russian beverage markets. In the Nordic financial space, the positive loan impairment
trend continued with DnB reporting very low losses due to reversals from the shipping
segment and the Baltics. With reporting season still under way, the primary market
remained relatively subdued but a few large issuers came to the market including AAA-
rated KFW, which tapped its 2.375% Jan 2018 by NOK250m at around MS+29bp and
Swedish capital goods maker Sandvik, which came to the market printing SEK4bn in a
split maturity tranche.
Selected new issues during the week
Name Rating Coupon Maturity Currency Size Spread*
Volkswagen Financial A3/A- 2.360% 3Y NOK 500m +22 Sandvik BBB/NR FIX/FRN 5.5/6.5Y SEK 4,000m +91 Mahle Group NR FIX 5Y EUR 300m +140 KFW AAA 2.375% 4Y NOK 250m +29
Note: Ratings are senior unsecured ratings from Moody's and S&P
* Mid-swaps for fixed, discount margin for floating
Source: Bloomberg, Danske Bank Markets
9 May 2014
Weekly Credit Update
Contents
Market commentary 1
Selected charts 3
Recently published research 5
Official and shadow ratings 7
iTraxx Europe (investment grade)
Source: Bloomberg, Danske Bank Markets
iTraxx Crossover (high yield)
Source: Bloomberg, Danske Bank Markets
Chief Analyst Thomas Hovard +45 45 12 85 05 [email protected]
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Weekly Credit Update
Higher capital requirements for Swedish banks
During the week, the Swedish FSA published its report on how future capital
requirements for Swedish banks will be devised. The minimum common equity tier-1
(CET1) requirement for the four SIFI banks in Sweden continues to be 12% with effect
from 1 January 2015, but as a new thing, 2pp of the 12% will be part of the pillar II
requirement. This was expected as was the raised floor on Swedish residential mortgages
from 15% to 25%. The floor continues to be a pillar II requirement. Also largely expected
was the FSA’s intention to introduce a countercyclical buffer and although the level will
first be decided upon in the autumn of 2014, the FSA used 1.5% as a guidance and hence
the best bid for a likely level.
The real news was the disclosure of how large the current pillar II requirement is for
Swedish banks excluding the above-mentioned items; however, not on an individual basis
but as a standardised 2% for all banks of which 1.5% is to be covered by CET1.
All the above requirements for CET1, whether pillar I or pillar II, add up to rather large
requirements. It is important to highlight that unlike the Swedish FSA, the FSAs in
Norway and Denmark have raised the requirements mainly by affecting the reported
figures, for example, raising the LGD for mortgages in Norway to 20% from 10% or the
order for Danske Bank to raise RWA by DKK100bn.
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EUR investment-grade cash spreads (ASW) EUR high-yield cash spreads (ASW)
Source: Danske Bank Markets Source: Danske Bank Markets
iTraxx (Europe) vs CDX (US) Investment grade corporate yields
Source: Danske Bank Markets Source: Danske Bank Markets
Nordic corporates vs iTraxx Nordic banks 5y CDS spreads
Source: Danske Bank Markets Source: Danske Bank Markets
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Corporate BBB bond yield vs EuroSTOXX dividend yield 3M Libor OIS spreads
Source: Danske Bank Markets Source: Danske Bank Markets
Financials spread vs non-financials (Industrials), A-rated
Source: Danske Bank Markets
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Recently published research
Scandi High-Yield Handbook – May 2014
Scandi High-Yield Handbook – the credit handbook of selected high-yield corporate
issuers and issues in the Scandinavian region.
Credit Update – Sponda Q1 14
Sponda's Q1 results were stable considering the weak market conditions in Finland. We
take a positive view of the announced property transaction. While we were expecting
Sponda's new strategy to have a positive impact on the company over time, we did not
expect such a sizeable transaction to be agreed so quickly. We also see it as positive that
Sponda managed to carry out the sale at fair value (or even slightly above). All in all, we
maintain our view of Sponda as a 'BBB-' credit with stable outlook.
Credit Update – Hemsö Q1 14
Hemsö presented solid figures in an eventful first quarter. Rental income was flat while
profitability improved slightly year on year. The company continued its expansion in
Finland and acquired 15 properties for health and elderly care. Operating cash flow
improved while leverage remains in the higher range of what we view as appropriate for
its current rating. The business risk profile remains very strong with high occupancy
rates, long rental agreements and a strong tenant base of government-linked entities. We
maintain our view of Hemsö as a 'BBB+' credit, including a one-notch uplift from
implicit ownership support, with stable outlook.
Credit Update – Swedavia Q1 14
Swedavia delivered a good Q1 14 report with around 7% growth in both domestic and
international passenger traffic. Credit metrics improved despite continued investments in
airport facilities. A major investment property valued at SEK3.7bn has been put up for
sale. We continue to view Swedavia as an 'A-' credit with stable outlook.
Credit Update – Securitas Q1 14 - HOLD
The Q1 14 report was soft from a credit perspective and, in our view, highlighted
Securitas's need to increase investments in high tech security solutions to counter price
and margin pressure. Despite positive organic growth and a well implemented
restructuring programme Securitas's EBITA-margin declined slightly y/y. Credit metrics
are still commensurate with the 'BBB' rating and we see the bonds as fairly valued. We
maintain our Hold recommendation on Securitas.
Credit Update – TDC Q1 14 – HOLD
Cost reductions continue to drive earnings performance in TDC with the company
succeeding in achieving largely unchanged Q1 14 y/y EBITDA despite an organic sales
decline of 3.6%. Intensified price based competition in the mobile B2B segment is
weighing on sales, questioning TDC's ability to maintain premium-priced products in the
longer term. Consequently, incremental cost cutting remains top of the agenda. Given
TDC's DKK3.7 per share dividend policy and capex budget, we do not expect material
near-term balance sheet deleveraging. However, we expect TDC to deliver stable
earnings and refrain from any larger acquisitions, which should enable TDC to retain its
'BBB' ratings. We maintain our Hold rating on TDC's bonds.
Credit Update – SpareBank 1 Nord-Norge Q1 14 – HOLD
SpareBank 1 Nord-Norge reported a solid Q1 14 with continued low loan losses and
building of capitalisation. The pressure on NII is negative. Hold maintained.
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Credit Update – Sampo Group Q1 14 – HOLD
As expected Sampo reported a strong Q1 with the non-life operation benefitting from a
mild winter in the Nordic region. Sampo's outstanding bonds lack liquidity and we see no
reason to change our Hold recommendation on the back of the Q1 result.
Credit Update – Telenor Q1 14 – HOLD
Telenor released solid set of Q1 14 financial results with 1% organic growth and a 1pp
EBITDA margin expansion. The results contained no major surprises and management
reiterated its FY 2014 guidance. Positively, ARPU growth was evident almost across all
markets with the exception of Thailand and Pakistan. Norway returned to growth while
Sweden continued its solid growth track with India and Bangladesh also performing
nicely. The companys balance sheet strength was largely unchanged, prompting us to
main our Hold recommendation, reflecting the company's bonds being fairly valued at
current spreads.
Credit Update – Carlsberg Q1 14 – SELL
Carlsberg delivered a soft Q1 14, with western Europe the only segment to show profit
growth. Leverage increased slightly but we note that Q1 is a small quarter - only 5-6% of
FY EBIT. We keep our Sell recommendation as we believe current valuation is stretched,
bearing in mind Carlsberg's ambitions to perform large scale M&A in Asia. The
uncertainty regarding Ukraine/Russia could postpone these ambitions but, in our view,
the political risks to a vital market for Carlsberg (Russia) overshadow this.
Credit Update – Postnord Q1 14
Yesterday PostNord presented a somewhat weak report for Q1 14. Sales continue to
decline due to structural changes in the mail market but, positively, the logistics business
showed some organic growth. Leverage increased as cash flow was hit by working capital
changes. We continue to see PostNord as a 'BBB+' credit with stable outlook.
Credit Update – G4S Q1 14 - BUY
G4S's short Q1 14 trading statement pointed in the right direction, with 5% organic
growth and slightly higher EBITA and earnings y/y. At the teleconference, management
stated that G4S was on track to reduce the gearing ratio below the company's target in
2014. We believe G4S is a solid 'BBB-' credit and stands to benefit from continued
restructuring and management's high focus on fulfilling the leverage target of net debt-to-
EBITDA of below 2.5x (end-2013: 2.7x). We continue to see value in G4S's bonds and
maintain our Buy recommendation.
Credit Update – DNB Q1 14 - HOLD
Once again, DNB booked very low loan losses due to reversals from the shipping
segment and the Baltics. Capitalisation is building and operational performance continues
to be strong. However, the current valuation already reflects these strengths and thus we
maintain our Hold recommendation.
Credit Update – Higher capital requirements is credit positive
Higher capital requirements is credit positive as it makes the banks very robust and more
focused on retaining earnings.
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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
Akelius 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 HOLDBank 1 Oslo Akershus As BBB+ Stable T. Hovard / L. HolmBwg 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 Neg 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+ Stable Jakob Magnussen BUYDsv A/S BBB Stable Brian BørstingEg Holding B Stable Jakob MagnussenEika Boligkreditt As A- Stable Nils AspeliEika Gruppen As BBB Stable Nils AspeliElectrolux Ab BBB+ Neg Wr WD Brian Børsting HOLDElisa Oyj BBB Pos Baa2 Stable Kasper F. Larsen BUYEntra Eiendom As A- Stable Nils AspeliFinnair Oyj BB Stable Brian BørstingFingrid Oyj AA- Neg A1 Stable A+ Stable Jakob Magnussen BUYFortum Oyj A- Neg A2 Neg A- Neg Jakob Magnussen SELLFred Olsen Energy Asa BB+ Stable Sondre StormyrG4S Plc BBB- Stable Brian Børsting BUYGetinge Ab BBB- Neg Louis LandemanHelgeland Sparebank Baa2 Stable T. Hovard / L. HolmHemso Fastighets Ab BBB+ Stable Wiveca SwartingHusqvarna Ab BBB- Stable Louis LandemanInvestor Ab AA- Stable A1 Stable Brian Børsting BUYIss A/S BBB- Stable Baa3 Stable 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 RosendalKlaveness Ship Holding As BB- Stable B+ Bjørn Kristian RøedMeda Ab BB Pos Louis LandemanMetsa Board Oyj B+ Stable B2 Pos Mads RosendalMetso 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- Kasper F. Larsen 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- Sondre StormyrNorwegian Property Asa BBB- Stable Nils AspeliNykredit Bank A/S A+ Neg Baa2U Stable A Stable T. Hovard / L. Holm BUYOdfjell Se B+ Stable B Bjørn Kristian RøedOlav Thon Eiendomsselskap Asa BBB+ Stable Nils AspeliOlympic Shipping As B+ Stable B Åse HaagensenOutokumpu Oyj B- Pos Mads RosendalOrkla Asa BBB+ Pos Nils AspeliPohjola Bank Plc AA- Aa3 Stable A+ Stable 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 Stable 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 Sondre StormyrSecuritas 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 BUYSolstad Offshore Asa BB- Stable B+ Åse Haagensen
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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
Sparebank 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 SELLStena 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 HOLDSuomen Hypoteekkiyhdistys A- Stable T. Hovard / L. HolmSwedavia Ab A- Stable Gabriel BerginSwedbank Ab A+ Neg A1 Stable A+ Stable T. Hovard / L. Holm BUYSwedish Match Ab BBB Stable Baa2 Stable Brian Børsting HOLDSvenska Cellulosa Ab Sca A- Stable 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 Stable Baa2 Stable BBB Stable Kasper F. Larsen HOLDTeekay Offshore Partners Lp BB- Stable B+ Kasper F. LarsenTele2 Ab BBB Stable Kasper F. LarsenTelefonaktiebolaget Lm Ericsson BBB+ Neg A3 Neg BBB+ Neg Kasper F. Larsen HOLDTelenor Asa A- Pos A3 Stable Kasper F. Larsen HOLDTeliasonera Ab A- Stable A3 Stable A- Stable Kasper F. Larsen SELLTeollisuuden Voima Oyj BBB Stable Wr BBB Stable Jakob Magnussen BUYThon Holding As BBB+ Stable Nils AspeliUpm-Kymmene Oyj BB Pos 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 BBB- Pos Kasper F. Larsen BUYVolvo Ab BBB Neg Baa2 Neg BBB Stable Mads Rosendal BUYWilh Wilhelmsen Asa BBB- Stable Bjørn Kristian RøedYit Oyj BB Neg Louis Landeman
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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 author of this research report is Thomas Hovard, Chief Analyst.
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