Change to LatAm top picks list
Volkswagen – paying up to tap the capital markets
We add MercadoLibre to our LatAm top picks list
MercadoLibre (MELI US, BUY, TP USD 325) is a leading e-commerce platform in Latin America. The company operates its marketplace business across the whole region but is largely exposed to Brazil and Argentina (approx. 55% and 30% of sales). We believe the company will continue to benefit from an increasing popularity of e-commerce in Latin America and the economic recovery in its key markets. The proprietary payment platform MercadoPago is as well gaining traction from increased acceptance across different platforms. The recent introduction of free shipping in Brazil has impacted profitability but should in our view support further growth and market share gains.
Adding a Buy recommendation to a 5-Year senior unsecured VW bond in AUD
The German automotive sector remains dominated by diesel engine emissions and even allegations of collusion spanning back multiple years. Sentiment is impaired, investors remain sidelined, and equity valuations reflect a deep skepticism. Perhaps next week’s automotive trade show in Frankfurt, expected to showcase the industry’s electric engine concept cars will enable German and other carmakers to display their vision for the future. In the meantime, Volkswagen (VW, CS fundamental credit view: Negative) continues to offer bondholders a very generous credit spread to be able to tap the bond market. The carmaker is currently in the market with a AUD 225 m 3.5% coupon 5-Year bond, offering investors a credit spread of approximately 145 bp to Australian government securities. We consider this an attractive yield/spread for investors with excess AUD liquidity. We assign the bond a Buy recommendation (ISIN AU3CB0247047). Looking forward, we expect Volkswagen’s credit spreads to be driven by developments in the EU cartel investigation (ongoing, but ultimately we do not think anything of substance will emerge), potential further emissions liabilities (possible, but unlikely to be of a size to threaten the credit profile) and operational performance (we think this is improving).