Interpublic Group: March 20

…Free cash flow was negative in 2022 because of an extensive use of working capital. Interpublic
Group typically generates positive working capital but blamed the huge use on timing issues.
We expect working capital usage to return to a more normal pattern this year, leading to free
cash flow of roughly $1 billion. That incorporates the 7% increase in the dividend. We estimate
that $400 to $500 million will be used for share repurchases. The company bought back $320
million in 2022 after suspending repurchases subsequent to the Acxiom acquisition in 2018.
Another $100 million or so may go toward acquisitions. Interpublic Group spent a little more
than $230 million for RafterOne last year, which was one of its biggest deals. It is possible that
some cash could be directed to debt reduction. However, leverage is down to 1.8x and will likely
fall to 1.6x with the expected increase in EBITDA this year. So there is no urgent need to cut
debt any further. If the company decides to pay down debt by roughly $200 million, leverage
would drop to 1.5x. Interpublic Group ended the year with cash of $2.5 billion.
Organic revenue growth is likely to continue slowing, resulting in an increase of roughly 3% this
year. Reported growth should be similar. But the modest growth should be accompanied by
better margins via lower occupancy expenses. Meanwhile, free cash flow is outstanding, and
leverage is comfortably below 2x. We maintain our buy recommendation, with the 2031 notes
trading at a spread of +175.

Endeavour Mining PLC: March 20

…Elevated gold prices are set to support the company’s profitability this year. Gold prices soared between
November 2022 and early February 2023 on hopes the Federal Reserve would soon slow the pace of interest
rate hikes. This would have in turn led to a weaker dollar and lower Treasury yields and therefore improved the
attractiveness of gold. Yet, this thesis turned out to be wrong, at least for now, as the Federal Reserve
indicated that interest rates may have to remain elevated for longer than initially expected. Hence, gold prices
fell during February, erasing the advance seen year-to-date. Yet, the collapse of Silicon Valley Bank and
Signature Bank led to a sharp rally in gold prices as concerns around the banking system have bolstered the
haven status of gold. At $1,974/oz, spot gold prices are now back to the highest level since April 2022.
EDVLN 5% 2026 bonds trade at 85, a z-spread of 657bps and offer a yield-to-worst of 10.1%. We have a
positive fundamental opinion on Endeavour. We positively view the fact that the company seeks to mitigate
the risk associated with its exposure to Burkina Faso (from where it generates c. 50% of its gold production)
with a solid balance sheet and a relatively conservative dividend policy (shareholder distributions are linked to
gold prices and the company’s net leverage). Besides, the company is on track to gradually expand production
volumes in other countries (with projects in Senegal and Ivory Coast) to reduce its exposure to Burkina Faso.
We keep our “outperform” rating.

AbbVie: March 20

…AbbVie’s cash flow continues to be robust, and even after paying its generous dividend, its free
cash flow exceeded $14 billion. This was nearly all used to pay down debt. With a 6% increases
in EBITDA, debt/EBITDA improved materially, from 2.6x to 2.0x. AbbVie management remains
focused upon debt reduction and plans to pay off $4 billion in maturities this year using free
cash flow. Mind you, this still leaves a debt load of nearly $60 billion. With EBITDA projected to
decline in the high teens due to the Humira U.S. LOE, we are forecasting leverage to deteriorate
slightly to 2.3x. With the Allergan opioids settlement resolved, the biggest threat to the credit
profile remains event risk (i.e., large, debt-funded acquisitions), if management’s plans to return
to growth organically don’t pan out. We reiterate our “underperform” (2029 bonds at T+127).

Gaming and Leisure Properties, Inc.: March 20

GLPI’s financial results in the fourth quarter were good. Consolidated total revenue was near
$336 million and adjusted EBITDA was $312 million, an almost 13% increase from $277 million
in the prior year period. GLPI’s primary revenue (rentals from gaming company tenants) is $1.2
billion annually. Interest expense has increased somewhat to near $310 million, but capex is
modest since the leases require the tenants to maintain the properties. We calculate LTM
adjusted EBITDA at $1.2 billion that leads to leverage and net leverage of 5.1x and 4.9x,
respectively. The company has continued to diversify its tenant roster with recent deals and it has six wellknown regional gaming operators with triple net leases and reasonably strong credit measures.
We last rated the 2003 bonds outperform with limited upside and they have moved down a
couple points with the market and now trade at a y.t.w. of 6.2%. We maintain the rating.

Credit Suisse Group: March 20

Although press reports say UBS was not enthusiastic about the merger, it stands to benefit. It
will be the dominant bank at home and will control US$5 trillion in global wealth and asset
management assets. S&P revised its outlook on UBS’ ratings to negative yesterday; we don’t
disagree with the agency’s view that the deal will involve “material execution risk.” UBS expects
US$8 billion in cost savings, but this will require disruptive cuts, especially at CS’s investment
bank (already slated for downsizing). The Swiss government is providing support for the deal,
however, including using its emergency powers to allow it to close without shareholder approval.
Closing is expected in the second quarter. UBS is getting liquidity support from the SNB. After an
initial CHF5 billion in losses which UBS will absorb, the Swiss authorities will also provide up to
CHF9 billion to cover additional losses on non-core assets. UBS will have CHF56 billion of
“badwill” (including the AT1 write-off), to help offset purchase accounting marks, restructuring
costs and the run-off of non-core assets. Regulators will now demand higher capital ratios, but
there will be a transition period. Credit Suisse senior bondholders are also winners since the
senior debt is effectively being bailed out (though regulators will not utter the B word). The
6.537% notes due 8/12/33 soared to $95 yesterday, from $71.50 on Friday. Considering the
integration risks, we maintain an underperform opinion at this new higher level.

LyondellBasell Industries: March 20

…The company’s fourth quarter results reflected margins stabilizing at the lower levels seen
towards the end of the third quarter driven by high energy and feedstock costs as well as softer
global demand. LYB expects these challenging market conditions to persist at least through the
first half of 2023 with the second half showing improvement. In response, the company is
aligning production at its plants with global demand trends (first quarter utilization for Olefins &
Polyolefins and Intermediates & Derivatives are expected to be about 80%). Start-up activities
for the new PO/TBA capacity in Houston remain on track for the end of the first quarter. The
company expects typical spring and summer seasonal demand improvements and is prepared
to leverage any increased economic activity in China as the year progresses.
Based on our revised 2023 projections, we expect leverage to increase to 2.5x as a more
modest level of free cash flow generation is mostly used for share buybacks with leverage likely
to begin receding in 2024. The 3.5% senior notes due 2027 yield 5.0%. Recommendation
changed to underperform with limited downside.

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