// Top Trade Ideas to YE24 //
Integrated Utilities:
- Buy EDF 5 1/8 PERP NC29s (green, newly issued 2-EUR tranches) and EDF 5 5/8 PERP NC32s: attractive combination of high yield offered, overall reduction in Hybrids stack (post tenors, OCEANs) plus improving fundamentals.
- Buy EDP 5.943% NC28s: green, high legacy coupon with solid fundamentals.
- Take profits on IBESM low-coupon hybrids (belly NCs); green IBESM 1.575% NC27, non-green IBESM 2.25% NC29: ENW deal & EUR13bn funding requirement to YE26 could make IBESM a more frequent hybrid issuer in the near-term; we expect to find more attractive entry-points in the future.
Regulated Utilities:
- Buy A2A 5% NC Nov29 green hybrid: name has low leverage, recently increased FY24 guidance, benefits from a more generous distribution RAB remuneration for gas in Italy with good visibility on underlying earnings. Trades cheap to new SNAM sub.
- Buy SNAM 3 7/8 '34: top pick since '24 start given Snam's defensive earnings profile combined with new energy arm acting as a growth engine - we still prefer wide-trading bonds against chasing 'tight' new hybrid.
- Buy TRNIM 3 7/8 EUR '33 vs. sell REESM 3% EUR '34: Terna faces a comparatively better regulatory framework vs. Redeia and bond offers c.25bps pick-up
Renewables and O&G:
- Buy ANESM 5 1/8 EUR '31s: strong IG commitment despite weak 1H24 vs. FY23, with more flexible capex from 2025 onwards.
- Buy CEPSA 4 1/8 EUR'31s: steep curve vs. CEPSA '28s and bonds have widened +20bps since issue date despite Cepsa benefitting from local consumption trends in Spain, IG rating not at risk.
TMT:
- Buy high-coupon TELEFO hybrids: we recommend to taking a barbell approach to TEF's hybrids as we see price upside for the high coupon hybrids as perception on VOD becomes more mixed.
- We like the value which Swisscom (SCMNVX; A1 CWNeg, A* RfD) offers vs Orange (ORAFP; Baa1 Pos, BBB+ Sta, BBB+ Sta) in the long end: flight to safety overrules softer ops.
- Buy TMUS 3.7% EUR '32s: TMUS reported a 2Q earning beat whilst its bonds trade flat to several TELEFO bonds with similar maturities despite its higher rating and more encouraging EBITDA growth.
- Buy AMT short-end EUR bonds: post-AMT's upgrade to mid-BBB by S&P, < EM exposure and real deleveraging trend (we like rel val vs Cellnex in shorter duration)
- Buy INWIT 1.75% EUR '31s on CoC trigger potential: potential of upwards re-pricing given CoC trigger language in its documentation (positive precedent from KKR's takeover of Vod's Vantage Towers).
Autos:
- Buy BMW 3 3/8 EUR '34 outright or against VW 3.3 '33: newly issued bond has not yet tightened in-line with BMW's curve and widened +9bps following BMW's reduction in FY24 guidance (immaterial impact on BMW's credit rating), potential for further tightening of VW is limited and we see potential for further negative newsflow on VW in the near-term.
- Buy VW 7 1/2 PERP NC28: investor perception of VW hybrids ≠ seniors – benefits from scarcity factor and is thus more shielded vs. VW seniors against negative newsflow, we prefer VW 7 1/2 PERP NC28 vs. VW 7 7/8 as for a similar coupon, cash price and duration is less.
- Buy STLA 4 1/4 EUR '31: STLA's '31 is trading near its highs and trades closest to VW in the 5Y part of the curve (offers most protection as STLA should trade in-line with/inside of VW). Despite the weaker-than-expected 1H24 results, STLA's margins are still stronger vs. peers and EV roll-out is at an advanced stage.
Infrastructure:
- Buy ABESM 3.248% NCNov25 & ABESM 2 5/8 NCApr27: renewed strong commitment to IG, needs hybrids - removed risk overhang from Texas and we like ABESM's solid hedge against near-term inflation via contracts.
- Buy DGFP 1.75% EUR '30s: another flight-to-quality decompression trade idea with Vinci earnings beating estimates and its stronger credit profile vs. Bouygues.
REITs:
- Buy COLSM 1.35 EUR '28s: impressive 1H24 execution with solid KPIs and strong deleveraging (-280bps vs. YE23).
- Buy MRLSM 1.375 EUR '30s: Merlin executed a EUR920m capital increase and GAV positive revaluation expected ahead; good results momentum supported by the Spanish macro ahead with upside ratings pressure expected.
Healthcare/Pharma:
- Buy WERFEN 4.625% EUR '28s & buy WERFEN 4.25% EUR '30s: OW Werfen remains a high conviction trade of 2024 as the group makes strong deleveraging progress and guides to a 'slight' improvement in EBITDA margins for FY24.