Ovako : Focus Emission

Credit opinion:We find compelling that Triton is obviously interested to IPO the business or to divest it in the mid-term, although the former is a more likely exit scenario. This implies that the company’s main focus is to de-lever until it reaches a leverage that allows rousing equity investor interest. The background of further restructuring benefits, healthy volumes and price recovery gives momentum to Ovako and provides an interesting credit story, although tail risk or sharp economic contraction can never be ruled out, which would be severe to Ovako given its cyclicality.The positive outlook by both rating agencies comes earlier than expected. We thought that a positive rating action could be seen in early 2018. However, it seems S&P and Moody’s used now the opportunity to adjust the rating together with rating the new bond issue. We anticipate an upgrade and assign a ‘B’/Stable credit opinion.Recommendation:Nyrstar is the best peer in our view.../... but is on negative outlook at S&P. Nyrstar is covered by our Fixed Income team and we have currently a ‘B–‘/Stable credit opinion. Nevertheless, the likelihood that Ovako will be upgraded to ‘B’/’B2’ in 2018 is high in our view and therefore we would expect that Ovako’s yield would end-up below Nyrstar’s. A yield around 5.5% is reasonable for us and a return where we recommend subscription.The equity claw back at 102% and the change of control at 101%, in light of Triton’s divestment strategy, represents upside we note.>