The ATDBCN EUR 3.901 2033 issue stands out from the crowd in the IG consumer space

Recommendation on ATDBCN EUR 3.901 2033 senior issue: Buy

• We see up to 0.9pt of relative upside for the issue over the next three months
  
  The ATDBCN 2033 issue trades cheap to its own issuer curve: It yields c.4.2% and trades 12bp back of its secondary issuer curve, which we attribute to technical factors. It was issued as recently as April and we assume this discount will fade as the bond becomes increasingly seasoned to year end.

• Alimentation Couche-Tard (‘Couche-Tard’) should trade at least in line with lower rated Tesco. The ATDBCN 2033 issue trades 15bp back of the 2022-23 EUR issuer curve of lower rated Tesco. Based purely on fundamentals, then Couche-Tard should trade inside Tesco. Even if we adjust for the overhang of the credit’s North American domicile on its bond valuation, we nevertheless see fair value as being, at the very least, in line with Tesco. This infers potential upside of close to 0.9pt for the ATDBCN 2033 issue.

• The ATDBCN EUR 2033 issue trades wide or in line with weaker rated consumer credits. The issue is trading broadly in line with Carrefour and Kraft Heinz, wide of the issuer curve of Magnum and wide of and in line with the issuer curves of cyclical credits H&M and El Corte Ingles SA respectively.

• Couche-Tard ranks as a stronger credit than many of its consumer peers. Couche-Tard stands out as substantially larger in terms of market capitalisation than peers we discuss in this publication and benefits from a far stronger adjusted margin than Carrefour and Tesco and a higher margin relative to same-rated Ahold.  We would also highlight General Mills and Carrefour as weakly placed for their lower S&P ratings, while the business profile of Kraft Heinz is at risk of downgrade at S&P, an event which we assume could pressure its current rating.  

• Acquisitive but with a good track record of successfully integrating sizeable bolt-on deals, followed by relatively quick deleveraging. This has helped Couche-Tard secure credibility with raters, which together with bondholders, can derive comfort from the company’s track record of reverting back to its 2-2.5x leverage target following sizeable acquisitions.   

• Acquisition of Zabka Group, Poland’s largest convenience retailer, can be absorbed within the group’s current ratings. S&P assumes a rise in Couche-Tard’s adjusted leverage, pro forma for the acquisition. to 3.2x from 2.1 at FY 2025-26 under a full ownership scenario and that it can delever to a level of c.2.5x, comfortably inside the 3x downgrade threshold for the BBB+ rating, within two years of transaction close. Couche-Tard is similarly well positioned in respect to its Baa1 Moody’s rating.