New Invest Ideas

Three new notes for you:

1.5Y USD, BRC on HP, 8% guaranteed coupon

On 27th of February HP Inc missed its Q1 revenues target by USD 150 M. On the other hand, the company beat slightly its earning per share. As a result, the stock heavily dropped by 16.94% on the 27th of February. Still the company reiterates its FY19 guidance with EPS from USD 2.12 to USD 2.22. After the recent results, Bank of America downgraded HP Inc from Buy to Underperform and lowering the target from $ 30 to $19

Some investors believe that the stock drop was exaggerated, that the company should still have a good potential betting on the growth of the 3D printing industry (referred to by HP Inc CEO as the “Fourth industrial revolution). Qualified investors with some conviction on the stock and the industry could consider the recent peak of volatility as an opportunity to gain exposure to HP Inc either directly or via a structured strategy

The structure runs for 18 months, offering a guaranteed return of 8% p.a. The structure offers a capital protection thanks to a European barrier at 73% (equivalent at USD 16.95). Other alternatives are available (see below) on other names such as Tesla, Kraft… which have seen their stocks dropping last week

Product Parameters

Issuer rating A (rated by S&P)
Currency USD
Maturity 1.5 Year
Underlying HP inc. (HPQ UN)
Frequency Quarterly payment
Guaranteed coupon 8% p.a.
European barrier 72.84%
Investor Profil Neutral
Delivery Cash or Physical
Alternatives 1Y, Kraft, EU KI 70.92%, 8.00% p.a. guaranteed; 1Y, Tesla, EU KI 50%, 13.26% p.a. guaranteed; 1Y, WO: Tesla, HP, EU KI 50%, 14.52% p.a. guaranteed

Mechanism

Scenario 1:At maturity, HP up by 10%
Payoff:Qualified investors get 100% capital back + 2% coupon (8% p.a.). 10% coupon has already been paid (payout = 112%)

Scenario 2:At maturity, HP down by 5%
Payoff:Qualified investors get 100% capital back + 2% coupon (8% p.a.). 10% coupon has already been paid (payout = 112%)

Scenario 3:At maturity, HP down by 30%
Payoff:Qualified investors get 70% capital back + 2% coupon (8% p.a.). 10% coupon has already been paid (payout = 82%)

The following graph represents the performance of the underlying over the last 5 years:

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9M USD Outperformance on Coffee, 175% participation, Max redemption 152.50%

Large companies such as Coca-Cola, Starbucks, Nestle and others such as JAB (a German family-owned company with major shareholding stake in JDE) look to build a coffee empire. In 2018, the estimated total demand for coffee has been around 9.7 M tons, whereas the estimated coffee production (Robusta and Arabic) for 2018 has been estimated at 10.01 M tons. On the other hand, given the historical wobbliness of the supply side, this year will likely see Brazil produce another large coffee crop (3.60 M tons), and world production and inventories stabilise

The possibility of China and India starting to consume coffee like other developed nations, should have positive effects on coffee prices. Despite this price increase, coffee demand is pretty inelastic and shouldn't be negatively impacted in developed countries. Also, if the US dollar starts to lose ground against LatAm currencies, local farmers should be disincentivized to exporting extra amounts of coffee (the case in 2018), causing the supply to further contract

For qualified investors looking to have an exposure on the commodity, the enclosed strategy offers a leverage exposure of 1.75 times on the upside over 9 months with a maximum payout at 152.50%. Investors could also look at alternatives such as investing in a strategy offering exposure to Coca-Cola, Nestle, Starbucks, McDonald's, the second investment strategy offers a leveraged exposure at 1.77 times on the upside, could also be interesting

Product Parameters

Issuer rating BBB (rated by S&P)
Currency USD
Maturity December 2019
Underlying Coffee (KCZ9 Comdty)
Downside 100%
Upside 175% on call spread 100-130%
Max redemption amount 152.50%
Strike 100%
Investor Profile Bearish Speculative
Alternatives 1Y, Outperf on (EW) Starbucks, Mc Donald's, Coca-Cola, Nestle, 177.40% upside participation, no cap

Mechanism

Scenario 1:At maturity, Coffee is up 25%
Payoff:Qualified investors get 100% capital back + 43.75% participation (25% * 175%)

Scenario 2:At maturity, Coffee is up 37%
Payoff:Qualified investors get 100% capital back + 52.50% (cap is reached)

Scenario 3:At maturity, Coffee is down 20%
Payoff:Qualified investors get 80% capital back

The following graph represents the performance of the underlying over the last 5 years:

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2Y USD 3x Leveraged CLN on Egypt, 8% p.a. coupon

On the eve of the January 25, 2011 revolution, Egypt held a relatively comfortable 21st place on risk rankings, with a credit default spread (CDS) of 234 basis points. The CDS spread on Egypt’s debt shot up in the summer of 2013, climbing above 700 during the lead up to the overthrow of former President Mohamed Morsi, and peaking above 900 basis points when the military-backed interim government took over. In 2015, Bank of America stated that Egypt has the fifth riskiest sovereign debt in the world”. Since then the CDS has dropped from 408.335 in 2015 to 234.500 today

The enclosed strategy offers a coupon of 8.00% p.a. paid annually (the equivalent structure without leverage offers a 3.45% p.a. coupon and according to the issuer the equivalent bond 1Y and 3Y offer respectively 4.70% p.a. and 5.50% p.a. returns). The difference is justified by the leverage of 3x in case of credit event (floored at 0%)

Product Parameters

Issuer rating A+ (rated by S&P)
Currency USD
Maturity 2 Years
Exposure Arab Republic of Egypt (EGYPT CDS USD SR 2Y D14)
Egypt Rating B
CDS Value 234 bps
Leverage 3x
Recovery Market recovery paid at maturity
Coupon 8.00% p.a. (not accrued in case of credit event, 30/360)
Frequency Annually
Trigger 500 bps
Investor Profile Sophisticated

Mechanism

Scenario 1:In Y1, no credit event occurred and trigger is not reached
Payoff:Qualified investors get 8.00% p.a. coupon

Scenario 2:In Y1, no credit event occurred, trigger is reached
Payoff:The product unwinds at Mark to market (floored at 0%)

Scenario 3:At maturity, no credit event occurred and trigger is not reached
Payoff:Qualified investors get 100% capital back + 8.00% p.a. coupon

Scenario 4:At maturity, a credit event occurred
Payoff:Market recovery determined by ISDA. Qualified investors get Max[100% - 3 * (100% - Market recovery); 0%]

Credit Event:If a credit event occurs, further coupons are forgone and the CLN will redeem at the final auction settlement price determined by International Swaps and Derivatives Association (ISDA: www.isda.org)

The following graph represents the performance of the underlying over the last 5 years:

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