Ingles Markets: June 20

…The company continues to maintain a conservative financial posture. IMKTA’s credit profile should continue
to remain steady for the foreseeable future. The 5.75% senior notes due 2023 yield 4.3% (dollar price:
$102) and have a relatively short four years until maturity (and only two years until the notes are callable
at par), making them a safe bond to hold. However, given the price of the bond is above the par call
price, we temper our recommendation to outperform with limited upside from outperform.

DXC Technology: June 20

…Management has made it clear that it will continue to pursue acquisitions to round out the portfolio.
However, it indicated that most deals will be smaller tuck-in deals, suggesting minimal debt increases.
Moreover, DXC has the cash flow to repay debt very quickly. Although the revenue weakness will likely
persist, we expect margins to improve. Meanwhile, leverage remains low and free cash flow is excellent.
Equity investors have not been pleased with the company’s EPS and revenue guidance because they are
focused on growth. But we like the outlook for other key credit metrics. Therefore we maintain our buy
recommendation, with the 2027 notes trading at a spread of +172.

MTN Group Ltd.: March 11

…MTN’s new ZAR 15 billion divestment program (including the already agreed to sale of its minority stake in
Botswana’s Mascom for $300 million) will enable the company to improve its credit measures going forward.
Besides, starting from 2020, we believe that the company’s free cash flow will get closer to breakeven as
MTN’s EBITDA will increase while capital expenditure will decrease. In light of the management team’s
efforts to simplify the group and reducing the credit risk, we expect a gradual improvement in MTN’s credit
profile. Late last year, MTN agreed to pay $53 million to settle an allegation about the illegal repatriation of
funds, removing another layer of risk on the company. MTNSJ 4.755% 2024 bonds trade at 95.5, a z-spread
of 317bps and offer a yield-to-worst of 5.7%. We change our recommendation to “outperform”.

J.C. Penney: March 08

…Given the department store retailer’s ongoing strategic transition coupled with recent management changes, JCP provided limited fiscal 2019 guidance which did include expectations for some gross margin improvement as the year progresses, positive free cash flow as further inventory reductions should be a source of funds, and a 60-basis point difference between total and comparable store sales. Based on revised projections, we look for leverage to decrease to 6.7x (7.0x rent adjusted) in fiscal 2019 and to 5.9x (6.4x rent adjusted) in fiscal 2020 assuming the economy avoids slipping into a recession. The 5.875% senior notes due 2023 yield 9.9%. Until we see more evidence of an operating turnaround, we remain underperform.

CenturyLink: March 08

…Spreads have widened significantly over the last several months and are now intriguing. Yet our near term outlook calls for lower revenue, while margin expansion appears limited after this year. Leverage should improve, but remains high. Another dividend cut would aid bondholders, but could seriously upset yield hungry equity investors, so a cut is not likely soon. We are keeping our sell recommendation, with the 2024 issue trading at a spread of +391.

America Movil SAB de CV: March 08

…The stock price is about 26% lower than its high point reached a year ago, significantly worse than the
Mexican stock markets (-16%). Bonds issued by several domestic issuers are under pressure due to some
risk aversion linked to the country’s uncertain economic direction, but America Movil remains solid. The
AMXLMM 3.125% 2022 bonds currently yield 3.35% (z-spread: 81bps), while the longer dated AMXLMM
6.375% 2035s offer 4.4% (z-spread: 168bps). Change to OUTPERFORM.

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