30. Nov 2016 Scope research
Corporates Outlook 2017: Still stable but more risks on the horizon
In general, Scope still sees broadly stable credit quality for most corporate sectors it covers, although a start to a negative trend is likely, given the now more mature credit cycle.
Scope’s industry experts believe that while cash generation is still satisfactory in most companies it observes, the risks driving down credit quality have become more real. These include a weakened ability for revenue growth (potentially leading to more M&A), increasing wages, and higher raw material prices – all of which start to erode the still solid cash flows that might result in lower capital expenditure, as an expression of lower confidence in the market.
In Scope’s view, the strong balance sheets and high liquidity positions that have built up in most companies over the last five years still bode well for stable credit trends, for at least the first six months of 2017. The utilities sector is the exception, for which Scope has a slightly more positive view than last year. While corporate credit quality has been supported by good demand in the past few years – helped by the ‘triple positive’ combination of low interest rates, low oil prices and low inflation –, Scope believes that the risks in companies’ operating environment, coupled with political factors and market sentiment, could become a turning point for the very mature credit cycle in Europe. In addition, the stronger divide of prospects between old and new economy sectors illustrates the likely need for more choice when it comes to investment in 2017. Also, certain business models of companies with high export shares to the UK might see further pressure after the implementation of Brexit. While Scope believes European default rates will not rise massively in 2017, historic lows might already have been reached.
Download the full report: 'Corporate Outlook 2017: Still Stable but More Risks on the Horizon'
Analyst Conference Call
Scope Ratings discusses its European corporates outlook for 2017 in a telephone and web conference call on Tuesday, 6 December 2016, 3:00 pm CET. Following a brief presentation, Scope analysts will be available to take questions.
When: Tuesday, 6 December 2016 at 3:00 pm CET
How: Conference call and web presentation
Analysts: Olaf Tölke, Werner Stäblein
Please register here.
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