EDF: EDF announced decent 1Q 2017 sales, with revenue down 1% to €21.1 bn mainly due to GBP depreciation. During the results conference call, EDF highlighted new French President Macron’s intention to set a carbon floor price, which could potentially ease competition arising from lower carbon prices and boost EDF earnings. Markets are now anticipating the updated energy policies from the new President. We thus note that EDF bond prices could move substantially either way based on how favourable the energy policies are.
On a valuation basis, EDF USD and GBP hybrids have tightened significantly since Macron’s victory. Since our note on 13 March 2017, EDF 6% Perp NC 2026 (GBP) has rallied by about £ 5.5 or tightened 66 bps in spread terms. We now think that the bonds have about 1-2 points of upside remaining relative to comparables and would advise investors to hold or take profit. As noted above, further upside could come from regulatory changes. Looking at other bonds, EDF 5% Perp NC 2026 (EUR) still looks attractive.
Genting Singapore: GenS has made an announcement to that it intends to redeem its perpetual bonds. The S$1.8 bn and S$0.5 bn tranches of GENS 5.125% may be redeemed on their first call dates on 12 September and 18 October 2017 respectively. GENS would be able to comfortably pay off the S$ 2.3 bn without taking additional debt for now. After redemption, GENS would still be in a strong net cash position of S$ 2.25b. From a credit perspective, GENS credit metrics have improved with steadily increasing net cash position, and the redemption would improve credit metrics further.
AXA: AXA reported 1Q2017 key activity indicators for 1Q2017 in line with consensus. Revenue growth remains stable at €32.4bil driven by Property & Casualty (€7.1bil revenue) up 3% y/y due to growth in commercial lines. AXA’s balance sheet remains strong with Solvency II ratio of 196%, well within the management target range. It has also announced its intention to list part of its US business (including stake in Alliance Bernstein) by 1H2018. However, there is no major impact for AXA Group from credit perspective.
As expected, AXA bonds rallied in tandem with election relief of Macron’s victory - z-spread compressed by 45bps m/m outperforming similar subordinated European insurance bonds. After the recent bond rally, we believe AXA 4.5% Perp NC 2022 valuation (z+218bps) is currently relatively tight compared to similar fixed-for-life coupon subordinated insurance bonds – Prudential 5.25% Perp NC 2021 which is trading at z+230bps with 1 year shorter callable date.