Boparan - Chickens in the basket

All,

Please find our unchanged analysis here

The purchase by Boparan Private office of a large poultry processing plant is a perplexing and potentially worrying scenario for investors in Boparan’s bonds. The price is undisclosed, but we estimate it to be around £15m - £20m. Controlling shareholder Ranjit Boparan has been vocal about the terrible state the industry is in so putting more of the family assets in the same basket suggests he may see brighter future soon. Alternatively, he may be seeking a way of threatening investor with Boparan Holdings v2.0 if liquidity is tight. Pricing for chicken will have to be addressed by the major supermarkets soon but in the meantime, the bonds will be under pressure, and we anticipate rating pressure, which would force certain holders to exit in the event of a downgrade. We will update our model at the FY results in November. 

 

What has the family office bought? 

Banham Group was bought out of administration by Chesterfield Poultry Limited (a large UK Halal meat processor). The vehicle used was Banham Poultry 2018 Ltd. The plant has a hatchery which supplies the chicks to the farms supplying the company. The processing plant is on a 12-acre site and the company sells 650k chickens a week (vs c4m for Boparan in the UK). The Company supplies chicken to major supermarkets, and other established stores and wholesalers throughout the UK. 

How much might have been paid? 

The purchase price is not public but at the same time, French producer LDC paid £28m for 75% of Capestone at a multiple of around 13x. Capestone’s EBITDA margin is 10% vs closer to 2% at Banham. If we apply a 5x multiple, we get to a figure of around £15m. Not a huge amount, but the question is why add the capacity now. Things will likely get worse before they improve, why not buy then?  

Positioning:

- We have taken a 5% of NAV short position via the standard 5year CDS. We have previously noted that Boparan is facing rising cost headwinds that are industry wide. Increasing exposure to the industry via the family office may be a vote for the future of the industry but it is hardly supportive of Boparan Holdings. Ranjit may be rearranging the chairs at the table for future discussions with bondholders. 

- Our short is now slightly in profit. We still see expect poor results and a downbeat outlook to force the bonds lower and rating action could lead to significant supply from forced CDO sellers. We, also believe the RCF was drawn before year end and think this may spook investors. So far, it's all been further stormy clouds rather than rays of sunshine.  

We look forward to discussing this and exchanging ideas with you

Aengus

E: amcmahon@sarria.co.uk
T: +44 203 744 7055

www.sarria.co.uk

Aengus McMahonBOPARAN