Senior Credit Analyst, Lucror Analytics

Leonard Law, CFA

Senior Credit Analyst

High Yield Experts

Lucror Analytics

Lucror Analytics is a leading credit and ESG research specialist and a provider of technology solutions for differentiated fixed income strategies. Our roots are in bottom-up fundamental credit analysis with a specialization in high yield corporate credits from Europe, Asia and Latin America. We are one of few research specialists integrating ESG considerations with fundamental credit research through a dedicated ESG platform. Our ESG assessment covers five key criteria: Disclosure, E,S, & G Pillars, Controversies, ESG Impact on Credit and ESG Momentum.

Recognizing the importance and value-add of Factor Investing in fixed income, Lucror developed the Smart Quant Navigator (SQN), an intuitive platform that helps clients devise and implement factor-based strategies ranging from pure quant to active fundamental, with integrated ESG.

Our company has been at the forefront of developments in the fixed income markets, identifying opportunities and consistently delivering new products and value-adding solutions to clients. Lucror has close relationships with the largest and most reputable asset managers, family offices, hedge funds, investment and wealth managers globally.

Credit

<p><br/> With the Q2/20 earnings season completed and Q3 season underway, the impact of COVID-19 on the credit profiles of issuers under our coverage is becoming more visible. Several companies have already achieved solid recoveries in Q3, as reflected by their results. However, new government-imposed lockdowns will have a substantial impact on the Q4 numbers. <br/><br/> We believe it is useful to analyse how COVID-19 has impacted companies at the height of the pandemic in Q2/20. As such, we provide an overview of the development of credit stats and liquidity, followed by brief round-ups of the developments and outlooks in the industries and various companies that we cover.<br/></p>

  With the Q2/20 earnings season completed and Q3 season underway, the impact of COVID-19 on the credit profiles of issuers under our coverage is becoming more visible. Several companies have already achieved solid recoveries in Q3, as reflected by their results. However, new government-imposed lockdowns will have a substantial impact on the Q4 numbers.    We believe it is useful to analyse how COVID-19 has impacted companies at the height of the pandemic in Q2/20. As such, we provide an overview of the development of credit stats and liquidity, followed by brief round-ups of the developments and outlooks in the industries and various companies that we cover. 

Europe HY – Q2/20 Results Review And Credit Metrics Amid COVID-19 - Lucror Analytics

<p><br/> The Europe HY Trade Book for October 2020 includes high-conviction trade ideas drawn from our European HY coverage universe, along with relative-value scatter plots and tables by industry.<br/></p>

  The Europe HY Trade Book for October 2020 includes high-conviction trade ideas drawn from our European HY coverage universe, along with relative-value scatter plots and tables by industry. 

Europe HY Trade Book - October 2020 - Lucror Analytics

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<div>
<h3>Trends</h3>
</div>
<div>
<p>There has been no obvious trend over the last three months regarding the discounts, although it has widened in some names.  Trading opportunities are less obvious, but some still exist.</p>
</div>
<div>
<h3>Recommended trades</h3>
</div>
<div>
<ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/entities/bayerische-motoren-werke-ag" target="_blank" rel="noopener"></a>
<p><a href="https://www.smartkarma.com/entities/bayerische-motoren-werke-ag" target="_blank" data-smartkarma-citation="entities:21591:1" rel="noopener">Bayerische Motoren Werke AG (BMW GR)</a> : the discount has traded sideways since mid-September, and is now 23.2%. I would recommend setting up a trade long BMW prefs, short common shares with a target of a 15% discount.</p>
</li>
<li>
<p><a href="https://www.smartkarma.com/entities/fuchs-petrolub-se" target="_blank" data-smartkarma-citation="entities:21624:1" rel="noopener">Fuchs Petrolub SE (FPE GR)</a> 's premium of preferred shares is a whopping 34.4% currently. Remember that voting rights are valuable. Recommendation: long ords/short prefs, with a 10% target.</p>
</li>
<li>
<p><a href="https://www.smartkarma.com/entities/henkel-ag-co-kgaa" target="_blank" data-smartkarma-citation="entities:21646:1" rel="noopener">Henkel AG &amp; Co KGaA (HEN3 GR)</a> : the premium is 13.0% (down from 15.4% in my September report). I would set up a trade long prefs/short common shares with a 10% premium target.</p>
</li>
<li>
<p>Voting rights are valuable in a company like <a href="https://www.smartkarma.com/entities/volkswagen-ag" target="_blank" data-smartkarma-citation="entities:21738:1" rel="noopener">Volkswagen (VOW GR)</a> , so a 5.8% discount of the prefs. seems about right. It has moved sideways since mid-September.  If you believe that the higher liquidity of the prefs will, at some point, mean that the discount will close, then a long prefs/short ords may be an option; plus it can be executed in size. The discount tightened since the March selloff and has been moving within a tight range. </p>
</li>
<li>
<p>A 35.9% discount of <a href="https://www.smartkarma.com/entities/danieli-c-officine-meccanich" target="_blank" data-smartkarma-citation="entities:21177:1" rel="noopener">Danieli &amp; C Officine Meccanich (DAN IM)</a> savers (vs. 37.5% in September and 39% in June) seems still too wide, and low liquidity does not help. I keep on recommending long savers/short ordinaries. A 30% discount is not a demanding target.</p>
</li>
<li>
<p><a href="https://www.smartkarma.com/entities/grifols-sa" target="_blank" data-smartkarma-citation="entities:21274:1" rel="noopener">Grifols SA (GRF SM)</a> B shares are trading at a 37.9% discount (vs. 41.9 by mid-September), there is a trend towards the tightening of this discount since mid-March. The discount in Grifols B shares has averaged 28% since listing of the B shares in February 2016. I recommend setting up the trade long B shares traded on Nasdaq, short A shares traded in Madrid. The target is a 27% discount. Please note there is FX risk, which can be hedged.</p>
</li>
<li>
<p>The current discount in <a href="https://www.smartkarma.com/entities/atlas-copco-ab" target="_blank" data-smartkarma-citation="entities:22282:1" rel="noopener">Atlas Copco AB (ATCOA SS)</a> B shares vs. A shares is 13.2%. I recommend setting up Long B shares/short A shares, with a target of &gt;10% discount.</p>
</li>
<li>
<p>The discount in the <a href="https://www.smartkarma.com/entities/telefonaktiebolaget-lm-ericsso" target="_blank" data-smartkarma-citation="entities:22354:1" rel="noopener">Telefonaktiebolaget Lm Ericsso (ERICB SS)</a> (Ericsson) B shares has tightened since my July recommendation: from 8.7% to 6.8%. I would keep the trade on with a 3% discount target.</p>
</li>
<li>
<div>
<p>The discount in <a href="https://www.smartkarma.com/entities/schroders-plc" target="_blank" data-smartkarma-citation="entities:22134:1" rel="noopener">Schroders PLC (SDR LN)</a> is now 32.7% (vs. 27% by mid-September). I would set up long non-voting/short voting shares.</p>
</div>
</li>
</ul>
<p>Please read on for table and charts.</p>
</div>


Trends


There has been no obvious trend over the last three months regarding the discounts, although it has widened in some names.  Trading opportunities are less obvious, but some still exist.


Recommended trades





Bayerische Motoren Werke AG (BMW GR) : the discount has traded sideways since mid-September, and is now 23.2%. I would recommend setting up a trade long BMW prefs, short common shares with a target of a 15% discount.


Fuchs Petrolub SE (FPE GR) 's premium of preferred shares is a whopping 34.4% currently. Remember that voting rights are valuable. Recommendation: long ords/short prefs, with a 10% target.


Henkel AG &amp; Co KGaA (HEN3 GR) : the premium is 13.0% (down from 15.4% in my September report). I would set up a trade long prefs/short common shares with a 10% premium target.


Voting rights are valuable in a company like Volkswagen (VOW GR) , so a 5.8% discount of the prefs. seems about right. It has moved sideways since mid-September.  If you believe that the higher liquidity of the prefs will, at some point, mean that the discount will close, then a long prefs/short ords may be an option; plus it can be executed in size. The discount tightened since the March selloff and has been moving within a tight range. 


A 35.9% discount of Danieli &amp; C Officine Meccanich (DAN IM) savers (vs. 37.5% in September and 39% in June) seems still too wide, and low liquidity does not help. I keep on recommending long savers/short ordinaries. A 30% discount is not a demanding target.


Grifols SA (GRF SM) B shares are trading at a 37.9% discount (vs. 41.9 by mid-September), there is a trend towards the tightening of this discount since mid-March. The discount in Grifols B shares has averaged 28% since listing of the B shares in February 2016. I recommend setting up the trade long B shares traded on Nasdaq, short A shares traded in Madrid. The target is a 27% discount. Please note there is FX risk, which can be hedged.


The current discount in Atlas Copco AB (ATCOA SS) B shares vs. A shares is 13.2%. I recommend setting up Long B shares/short A shares, with a target of &gt;10% discount.


The discount in the Telefonaktiebolaget Lm Ericsso (ERICB SS) (Ericsson) B shares has tightened since my July recommendation: from 8.7% to 6.8%. I would keep the trade on with a 3% discount target.



The discount in Schroders PLC (SDR LN) is now 32.7% (vs. 27% by mid-September). I would set up long non-voting/short voting shares.



Please read on for table and charts.


Liquid Universe of European Ordinary and Preferred Shares: October Report

<p><br/> The Europe HY Trade Book for September 2020 includes high-conviction trade ideas drawn from our European HY coverage universe, along with relative-value scatter plots and tables by industry.<br/></p>

  The Europe HY Trade Book for September 2020 includes high-conviction trade ideas drawn from our European HY coverage universe, along with relative-value scatter plots and tables by industry. 

Europe HY Trade Book - September 2020 - Lucror Analytics

<h3><strong>Trends</strong></h3>
<p>There has been no obvious trend over the last two months regarding the discounts, although it has widened in some names. Some of the previous (May and June) recommendations have been bang on. Trading opportunities are less obvious, but some still exist.</p>
<h3><strong>Recommended trades</strong></h3>
<ul class="">
<li>
<a href="https://www.smartkarma.com/entities/carlsberg-a-s" target="_blank" rel="noopener">Carlsberg A/S (CARLB DC)</a>: close trade long B/short A shares (B are trading at 4.4% discount from 12% in June).</li>
<li>
<a href="https://www.smartkarma.com/entities/bayerische-motoren-werke-ag" target="_blank" rel="noopener">Bayerische Motoren Werke AG (BMW GR)</a> : the discount has widened to 23% from 18% by mid-August, as a result of recent volatility. I would recommend setting up a trade <strong>long BMW prefs, short ords</strong> with a target of a 15% discount.</li>
<li>
<a href="https://www.smartkarma.com/entities/fuchs-petrolub-se" target="_blank" rel="noopener">Fuchs Petrolub Se (FPE GR)</a> 's premium of preferred shares is a whopping 33.6% currently. Remember that <em>voting rights are valuable</em>. Recommendation: <strong>long ords/short prefs</strong>, with a 10% target.</li>
<li>
<a href="https://www.smartkarma.com/entities/henkel-ag-co-kgaa" target="_blank" rel="noopener">Henkel AG &amp; Co Kgaa (HEN3 GR)</a> The premium of the preferred shares is 15.4%. I would set up a trade <strong>long prefs/short common shares</strong> with a 10% discount target.</li>
<li>Voting rights are valuable in a company like <a href="https://www.smartkarma.com/entities/volkswagen-ag" target="_blank" data-smartkarma-citation="entities:21738:1" rel="noopener">Volkswagen (VOW GR)</a> , so a <strong>5.8% discount of the prefs</strong>. seems about right. If you believe that the higher liquidity of the prefs will, at some point, mean that the discount will close, then a long prefs/short ords may be an option; plus it can be executed in size. The discount tightened since the March selloff and has been moving within a tight range. </li>
<li>
<a href="https://www.smartkarma.com/entities/grifols-sa" target="_blank" rel="noopener">Grifols SA (GRF SM)</a> B shares are trading at a 41.9% discount (vs. 38% in June). The discount in Grifols B shares has averaged 28% since listing of the B shares in February 2016. I recommend setting up the trade <strong>long B shares traded on Nasdaq, short A shares traded in Madrid</strong>. The target is a 27% discount. Please note there is FX risk, which can be hedged.</li>
<li>The discount in the <a href="https://www.smartkarma.com/entities/telefonaktiebolaget-lm-ericsso" target="_blank" data-smartkarma-citation="entities:22354:1" rel="noopener">Telefonaktiebolaget Lm Ericsso (ERICB SS)</a> (Ericsson) B shares has tightened since my July recommendation: from 8.7% to 7.7%. I would keep the trade on with a 3% discount target.</li>
</ul>
<p>Please read on for table and charts.</p>

Trends
There has been no obvious trend over the last two months regarding the discounts, although it has widened in some names. Some of the previous (May and June) recommendations have been bang on. Trading opportunities are less obvious, but some still exist.
Recommended trades


Carlsberg A/S (CARLB DC): close trade long B/short A shares (B are trading at 4.4% discount from 12% in June).

Bayerische Motoren Werke AG (BMW GR) : the discount has widened to 23% from 18% by mid-August, as a result of recent volatility. I would recommend setting up a trade long BMW prefs, short ords with a target of a 15% discount.

Fuchs Petrolub Se (FPE GR) 's premium of preferred shares is a whopping 33.6% currently. Remember that voting rights are valuable. Recommendation: long ords/short prefs, with a 10% target.

Henkel AG &amp; Co Kgaa (HEN3 GR) The premium of the preferred shares is 15.4%. I would set up a trade long prefs/short common shares with a 10% discount target.
Voting rights are valuable in a company like Volkswagen (VOW GR) , so a 5.8% discount of the prefs. seems about right. If you believe that the higher liquidity of the prefs will, at some point, mean that the discount will close, then a long prefs/short ords may be an option; plus it can be executed in size. The discount tightened since the March selloff and has been moving within a tight range. 

Grifols SA (GRF SM) B shares are trading at a 41.9% discount (vs. 38% in June). The discount in Grifols B shares has averaged 28% since listing of the B shares in February 2016. I recommend setting up the trade long B shares traded on Nasdaq, short A shares traded in Madrid. The target is a 27% discount. Please note there is FX risk, which can be hedged.
The discount in the Telefonaktiebolaget Lm Ericsso (ERICB SS) (Ericsson) B shares has tightened since my July recommendation: from 8.7% to 7.7%. I would keep the trade on with a 3% discount target.

Please read on for table and charts.

Liquid Universe of European Ordinary and Preferred Shares: September Report

Italy

Telecom Italia S.p.A., through subsidiaries, offers fixed line and mobile telephone and data transmission services in Italy and abroad.  The Company offers local and long-distance telephone, satellite communications, Internet access, and teleconferencing services.

Price Gauge
52-week Range	0.00 - 0.00
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Dividend (Yield)	0.00

Telecom Italia SPA (TIT IM)

Europe HY – Q2/20 Results Review And Credit Metrics Amid COVID-19 - Lucror Analytics

With the Q2/20 earnings season completed and Q3 season underway, the impact of COVID-19 on the credit profiles of issuers under our coverage is...

Lucror Analytics

Europe HY Trade Book - October 2020 - Lucror Analytics

The Europe HY Trade Book for October 2020 includes high-conviction trade ideas drawn from our European HY coverage universe, along with...

Lucror Analytics

Liquid Universe of European Ordinary and Preferred Shares: October Report

No clear trend over the last three months regarding discounts. Some ords/prefs trades/situations to watch: BMW, Fuchs Petrolub, Henkel, Volkswagen,...

Jesus Rodriguez Aguilar

Europe HY Trade Book - September 2020 - Lucror Analytics

The Europe HY Trade Book for September 2020 includes high-conviction trade ideas drawn from our European HY coverage universe, along with...

Lucror Analytics

Liquid Universe of European Ordinary and Preferred Shares: September Report

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Jesus Rodriguez Aguilar

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)