PRUDENTIAL PLC (PRUDENTIAL): Prudential released 1Q2017
performance highlight with new business profits of £856 million - grew by 25%
y/y on local currencies and 42% y/y on actual exchange rate. 1Q2017 group
Solvency II surplus remain stable at £12.4 billion, equivalent to a cover ratio
of 198% reflecting the strength of its capital position. To recap in the Credit
Watch dated 20 March 2017, we highlighted Prudential bonds are trading at an
attractive level and since then, both Prudential 5% 2055NC2035 (GBP) and
Prudential 5.25% Perp (USD) bonds has outperformed market rallying by 6pts and
3pts respectively; z-spread has tightened by 37bps and 20bps respectively. We
continue to like Prudential’s diversified geographic footprint and strong
balance sheet that remain defensively positioned across cycles. We believe the
current valuation is still appealing compared to its peers, and we prefer
Prudential 5.25% Perp (USD).
PERTAMINA PERSERO PT (PERTAMINA): Within expectation,
S&P's has finally revised Indonesia sovereign rating from BB+ (Positive) to
BBB- (Stable) reflecting reduced risks to Indonesia’s fiscal metrics and the
government’s focus on realistic budgeting. Concurrently, Pertamina was also
upgraded one notch to BBB- (Stable) being part of Indonesia quasi-sovereigns
USD bonds. Market digested the rating upgrade news positively with Pertamina’s
bond spread tightening 3-5 bps. Currently, the z-spread of Pertamina 6.45% 2044
and 6.5% 2041 are trading at an almost all-time low of 70bps and 77bps against
Indonesia USD sovereign bonds, well below its historical average of 100bps and
106bps respectively. We believe investors could take profit on Pertamina bonds
as the valuation are relatively tight compared to Indonesia USD sovereign
bonds.
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