AVP - Valens Credit Report - 2018 10 04
Credit markets are grossly overstating credit risk with a CDS of 682bps and a cash bond YTW of 9.268%, relative to an Intrinsic CDS of 338bps and an Intrinsic YTW of 6.338%. Additionally, Moody's is overstating AVP's fundamental credit risk, with their B1 credit rating four notches lower than Valens' XO (Baa3) ratingIncentives Dictate Behaviorâ„¢ analysis highlights that management's compensation framework focuses them on all three value drivers, which should lead to Uniform ROA expansion and higher cash flows available for servicing obligations. Moreover, management members have low change-in-control compensation, limiting event risk for creditors
AVP is currently trading near historical lows relative to UAFRS-based (Uniform) Earnings, with a 17.0x Uniform P/E (Fwd V/E'). At these levels, the market is pricing in expectations for Uniform ROA to maintain current 10%-11% levels through 2022, accompanied by 1% Uniform Asset shrinkage going forward. Given that valuations are likely being compressed by the market's inaccurate perception of the firm's credit risk, AVP could see material credit-driven equity upside if credit spreads tighten, even without fundamental improvement
Avon Products is a manufacturer and marketer of beauty and related products. The company's product categories are Beauty and Fashion and Home. Beauty consists of skincare, fragrance and color (cosmetics). Fashion and Home consists of fashion jewelry, watches, apparel, footwear, accessories, gift and decorative products, housewares, entertainment and leisure products, children's products and nutritional products. The company's business is conducted primarily in one channel, direct selling. The company's reportable segments are based on geographic operations in four regions: Europe, Middle East & Africa; South Latin America; North Latin America; and Asia Pacific.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.