Get to know us. Our unbiased credit research and global market insights help the world’s financial decision makers to better manage risk.
2023 Sector Snapshot: EUR Consumer
Mariya Nurgaziyeva, CFA – European Consumer & Support Services Senior Analyst
Maryum Ali, CFA - European Consumer Senior Analyst
Amarveer Singh – European Retail Analyst
Sahil Arora - European Strategy Analyst
Winnie Cisar Global Head of Strategy
Brian Perez – Strategy Analyst
Zachary Griffiths, CFA - U.S. Strategy Senior Analyst
EXECUTIVE SUMMARY
- We provide our Consumer sector strategy for 2023, including key themes, picks and pans, and risks for the coming year.
- IG Autos (Market perform). We remain comfortable with the sector given profitability and free cash flow generation remain at record highs, coupled with our view that fears over the impact of weakening consumer demand are overblown.
- IG Consumer Goods (Market perform). Our Market perform recommendation reflects the sector’s defensive credentials and relatively robust credit fundamentals heading into 2023. We expect stable to slightly weaker sector fundamentals in FY23 as a result of the tougher macro environment, but cash flow generation should remain robust.
- IG Retail (Underperform). Our Underperform recommendation reflects the sector’s tight spreads compared to the wider index (~60 bp differential), as well as some concerns over further pressures on consumer spending going into next year. Moreover, in a scenario of an improving macro backdrop, we would expect sectors that are trading wider to perform better than Retail. Although we are relatively constructive on the luxury names, given their wealthier customer base, the sector is not completely immune to a recession given the potential loss of aspirational shoppers.
Autos
Key Themes for 2023
- The impact of supply chain constraints on volume evolution
- Signs of weakening consumer demand for new vehicles
- Stubbornly high inflation, especially from wages and energy
Top Risks for 2023
- Slower than expected easing of COVID-19 restrictions in China
- Implementation of energy rationing in Europe
- Lower residual values for captive financing arms
Relative Value
European Auto spreads have widened year to date but have comfortably Outperformed the broader IG index. This is somewhat counterintuitive give the automotive sector is cyclically exposed. However, the sector has been subject to an extraordinary environment for more than 24 months now on the back on lingering supply side challenges, which have driven profitability and free cash flow generation to record levels. At the same time, as a shorter duration sector, the auto sector was slightly more insulated from the underperformance of duration more broadly through 2022.
To download the full article, fill out the form opposite and we’ll email you a PDF copy of the report.
Would you like access to the full report?
Submit your contact details to download the full PDF report.
Request a Trial
Receive 1-month complimentary access to our research platform, where you can browse our library of expert-produced insights and reporting. Qualifying institutions can gain access to our platform.
REQUEST A TRIAL
Sign up to our Newsletter
It is our mission to enable fixed income professionals to know more, risk better, and ultimately create value. Sign up to receive our monthly newsletters to get the latest credit insights direct to your inbox.
SUBSCRIBE NOW
Our Products
We’re proud to be the trusted resource for these credit research consumers:
Research
The independent research and actionable ideas you need to help guide investment and risk management decisions.
Risk Products
From BondScore to Credit Quality Score and Fallen Angel Score, these products give you an analytial edge.
Covenant Review
Brokers, financial advisors and private wealth managers entrusted with their clients’ assets leverage our intellectual capital when it comes to the credit markets.
LevFin Insights
News and analysis covering the debt capital markets including leveraged loans, high yield, secondary trading, CLOs, middle market and BDCs.
Markets Served
We’re proud to be the trusted resource for these credit research consumers: