Areva : One step beyond

Publication date 29/08/2017 12:08 - Writing date 29/08/2017 12:07 - Equity data - Reco: Under review - Target: € 2.50 - Equity Analyst : Alfred Glaser - [email protected] - +33-1 44 51 88 93 - - Corporate governance: High risk (4) - - New Areva notes - / - Share data - / - - / - - - - - - - - - - - - - - - - - - - - We lower our recommendation on the bonds to Neutral vs. Buy - The bonds have performed strongly since our last publication (see our special comment of 16 June 2016; we have not published an update since for compliance reasons, but we have covered the credit in our daily Morning Credit). - The 23/09/16 bonds, on which we had a Buy & Hold recommendation to take advantage of the attractive yield to maturity (4.5% at the time), have been redeemed. - Visibility has improved in recent months on the risk of a non-recapitalisation (the principal obstacle was the non-compliance of the vessel at the Flamanville EPR, but French nuclear safety authority ASN issued a conditional favourable opinion at the end of June, paving the way for the capital increases of Areva SA and New Areva) and the possible failure of the sale of New NP to EDF (following the ASN's favourable opinion, EDF announced in mid-July that it would lift the condition precedent relating to the Flamanville 3 EPR), pushing prices of the bonds up to record highs. - The 2024 bonds, which we recommended at 80% (or a yield-to-maturity of 9.1%), are trading today at around 112% (ASW+269bp, Z-spd of 259bp, yield-to-maturity of 3.0%). - Most of the rally is therefore over, and while a little relative value is left today (around 75bp compared with our sample of 'Ba2' or 'BB' rated bonds with a maturity of +/- 1 year around the 23/09/24 maturity, keeping in mind that the JPM 'BB' index is trading at 234bp), we think there is limited scope for additional tightening. - New Areva now needs to convince the market that it can improve its operating results in a mixed market environment. Conditions are likely to remain tough in mining and front end activities given the persistent weakness of uranium and enrichment prices, leaving little prospect of higher volumes. We are therefore awaiting better visibility on this operational part, which could place some strain on credit metrics. - - >