Equity & Credit Research

Transcription

1 Equity & Credit Research Nordea Markets Equities Anne Schult Ulriksen, Global Head of Credit Research, Senior Director May

2 A market undergoing major changes Credit Rating Agency Regulation (CRAR III) Market Abuse Regulation (MAR) MiFID II inducements ban unbundling of research from execution 2

3 Equity: The 174 largest Nordic investors say that Nordea is # Sector Coordinator Sector Coordinator Healthcare Shipping & Transportation Michael Novod Axel Styrman #4 Consumer Goods Stefan Stjernholm #4 Capital Goods Erik Golrang Investment companies Elias Porse Construction & Real Estate Niclas Höglund Energy Oddvar Bjørgan Oil Services Morten Nystrøm Small Cap & Quant Telecom Equipment & IT Materials Seafood Media Food, Beverages, Ingredients Forestry Macro & Strategy Carl Grapenfelt Martin Nilsson Christian Kopfer Kolbjørn Giskeødegaard Sami Sarkamies Hans Gregersen Harri Taittonen Martin Guri #4 Financials Maths Liljedahl #4 Telecom Operators Stefan Gauffin #4 Business Services Jesper Jensen Overall No. of No. of No. of Nordea DDB SEB ABG CAR

4 Credit Research: the clear Nordic market leader A truly pan-nordic house 10 analysts, local in all four Nordic countries Top rated by clients in all four Nordics Broadest Nordic coverage: 177 Nordic issuers bonds in EUR, NOK, SEK and USD Recommendations on 425 bonds Credit Research coverage mirrors the local business environment spanning between Nordic blue chip and small financial sponsored issuers Sector distribution of our coverage Prospera High Yield Company Research Prospera High Yield Strategy Research Telecom Operators Telecom Equipment Shipping and Seafood Oil Services Media Materials Investment Companies Healthcare Forestry Food, Beverages and Financials Energy Consumer Goods Construction and Real Capital Goods Business Services Nordic, all organizations Nordic, Tier 1 clients Norway Sweden Finland Denmark Nordic, all organizations Nordic, Tier 1 clients Norway Sweden Finland Denmark # 4 #

5 Investment research equity versus credit 5

6 Investment research equity versus credit Both focus on the risk-return in an investment......but simplistically one is more focused on the return on investment and the other more on the return of investment Equity Research Focus on equity instruments, the bottom of the capital structure Larger, more liquid secondary market Less frequent primary market Investor mandates often sector-based In theory the riskier investment and more volatile instrument: Shares much more sensitive to newsflow; share price triggers matter Analysts are usually sector specialists Credit Research Focus on debt instruments, in various parts of the capital structure Less liquid secondary market More frequent primary market Investor mandates often tied to currency and credit quality Usually less volatile instruments with defined upside price tied to a more variable downside focus on risk More technical craft: Bond duration Yields (to maturity, to call, to worst, etc) Covenants Security Position in capital structure Analysts are usually generalists covering several sectors 6

7 S&P s general corporate rating methodology: a framework to assess risk General corporate ratings matrix Financial scoring framework 7

8 Bond investment recommendations what we do (after the demise of shadow ratings) Financial risk profile S&P financial risk Debt/ FFO/ EBITDA/ FFO/Debt (%) CFO/Debt (%) FOCF/Debt (%) DCF/Debt (%) thresholds EBITDA (x) Interest (x) Interest (x) Minimal > 60 < 1.5 > 13 > 15 > 50 > 40 > 25 Modest Intermediate Significant Aggressive Highly Leveraged < 12 > 5 < 2 < 2 < 10 < 5 < 2 Financial ratios measuring solidity, liquidity, performance Run scenarios to demonstrate ratio sensitivity base case, credit case, distressed case Business risk profile Verbal discussion of most relevant business risks Key credit supportive factors Key credit constraining factors Key credit risk events, likelihood and impact to investors Peer group credit comparison Peer group comparison of credit quality, relative risk in bonds rather than a shadow rating Peers selected by analyst based on overall relevance, taking into account: Sector and business profile Bond currency Credit quality similarity, etc. Peer group bond pricing comparison Once the peer comparison has shed light on the credit quality, we then compare the issuer s bonds to a peer group of comparable bonds This peer group should consist of real investment alternatives. The two peer groups should to a great extent overlap Then we construct a reference curve based on this peer group, and assign a «fair value» for the bond For rated issuers we can use an open rating category curve Key concept to assess bond investment 1. Assess financial risk profile 2. Assess business risk profile 3. Peer group comparison 4. Peer group assessment + currency reference curve 5. Compare bond to reference curve Investment recommendation Recommendation Estimated Difference to Spread Yield Public Relative ISIN Bond name short Current (Old) Spread (mid) Fair spread Fair spread L3M Maturity (worst) ratings issuer quality SE BILLN 0 3/29/21 Outperform (Outperform) Reference curve Higher Peer bonds SE SANDSS 0 1/14/21 Market perform (Market perfo /BBB Higher SE HEXAG Market perform (Market perfo Slightly higher SE TRELB 0 1/18/21 Outperform (Outperform) HIgher SE LATMEK 0 12/7/20 Underperform (Market perfor Slightly w eaker XS ARLA Market perform (Market perfo Equal SE FVHSAM 0 5/18/21 Outperform (Outperform) Baa1/BBB+ Higher SE FVHSAM Outperform (Outperform) Baa1/BBB+ Higher 6. Decide investment recommendation 2

9 Best practices your communication matters 9 Risks 1. Business risks Facts, figures and info we look for What could change the company s robustness? - Business concentration, size, market power, credit risks, project risks Industry risks - Cyclicality, tendering activity (levels, trends), supply & demand outlook Expansion strategy - Acquisitive vs organic; Debt financed vs. equity financed 2. Operating risks Looking for stability and proven track record Operational performance - Delivering according to expectations, resilience in downturn scenario - LTM figures in cash flow and income statement, and if not at least full year and YTD Cash flow generation - Solid long-term cash flow, expected development in net cash position, working capital needs - A good bridge between EBITDA and adjusted EBITDA, stating all NRI - Current tax breakout 3. Financial risks: solidity, liquidity Looking for robust and consistent financial management boring is good Capital structure - Rating strategy, target leverage, tenors Debt and future financing needs - Break-down of borrowing facilities, drawn and undrawn, also in interim reports - Repayment schedule, debt market strategy, policy on incurring new debt - Net financials breakdown (to gross numbers) Capex and committed expenses - Expected annual investment, schedule for large investments, sources and uses of cash - Dividend policy 4. Risks relating to the bonds Looking for investor protection Structural subordination - Refinancing risks, renegotiating position: who is empowered and who is not? Bond documentation, including covenants and calls - Headroom to covenants

10 Disclaimer & Contact Details Nordea Bank AB (publ), filial i Norge, Essendrops gate 7, PO box 1166 Sentrum, 0107 Oslo, Norway, MVA (Norwegian Register of Business Enterprises) Nordea Bank AB (publ), Stockholm, Sweden, (Swedish Companies Registration Office) Nordea Markets is the name of the Markets departments of Nordea Bank AB (publ). The information provided herein is intended for the sole use of the intended recipient. The views and other information provided herein are the current views of Nordea Markets as of the date of this document and are subject to change without notice. The views have been provided solely based on the information made available to Nordea Markets and for the purposes of presenting the services made available by Nordea Markets. This notice does not substitute the judgement of the recipient. Nordea Markets is not and does not purport to be an adviser as to legal, taxation, accounting or regulatory matters in any jurisdiction. Relevant professional advice should always be obtained before making any investment or credit decision. This document may not be reproduced, distributed or published for any purpose without the prior written consent from Nordea Markets. Web: For disclosures and disclaimers, please click this link For questions, please contact: Anne Schult Ulriksen Global Head of Credit Research, Senior Director Nordea Markets Equities Visit me: Essendrops gate 7, Oslo Write to me: Postboks 1166 Sentrum, 0107 Oslo Tel: (86867) Mob: anne.ulriksen@nordea.com Web: nordeamarkets.com 11 20