Russia/Ukraine: Euro IG Credits We Like

CreditSights Staff

EXECUTIVE SUMMARY
  • With the most exposed Euro credits having sold off, as we head into the close of week three of the Russia-Ukraine war, investor attention has already turned to where to put cash back to work.
  • Identifying Euro IG safe havens as an overarching theme provided the starting point for this report, but we also take the opportunity to cut across sectors and issuers for evidence of opportunities and/or downside protection against second-order effects.
  • Of particular interest are Iberdrola, EDP and Veolia, given the opportunities relating to energy transition, while VW, Linde and Air Liquide benefit from varying degrees of cost inflation pass-through ability.
  • Within the Consumer space, EssilorLuxottica is well positioned against the current inflationary environment and potential supply chain disruptions; CRH and Verizon are notable safe havens withing the Building Materials and TMT sectors; and Akelius, Gecina and Aroundtown are our preferred picks within our Euro Real Estate coverage.
RELATIVE VALUE

As mentioned in our previous report on Issuer Exposure to Russia/Ukraine, direct exposure to credits with Russia or Ukraine as the country of risk is immaterial at the European corporate index level, but Russia and Ukraine nonetheless remain relevant markets for several credits with direct exposure under coverage. With these most exposed credits having sold off, investor attention has already turned to where to put cash back to work. In the report below, we highlight Euro IG credits that we like in the current market environment (we intend to follow up imminently with a similar report focusing on Euro HY). Identifying safe havens as an overarching theme provided the starting point for this report, but we also take the opportunity to cut across sectors and issuers for evidence of opportunities and/or downside protection against second-order effects of the Russia-Ukraine war, including cost inflation pass through, supply-chain disruptions, pace of energy transition and yield headwinds, to name a few.

Of particular interest is the industrial gas producers and distributors, Linde and Air Liquide, given their limited exposure to Ukraine and Russia, upside from tighter supply of Russian natural gas, and especially the ability to fully pass on energy price variations to customers in their On-site businesses (c.30% of total sales).

In the Euro utility sector there are several companies which have minimal exposure to Russia and where their business aligns with the increasing pace of the energy transition, such as

STRATEGY
Russia/Ukraine: Euro IG Credits We Like

CreditSights Staff

Russia/Ukraine: Euro IG Credits We Like

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