Boparan - eery silence

All,

Please refer to our unchanged analysis here.

It’s all quiet around Britain’s biggest poultry producer. The last headlines we saw in local newspapers were of a company desperately trying to hire who they could - presumably to cope with the volume. UK food demand has shifted substantially from HORECA to supermarkets and Boparan have always been overweight the latter. 

More recently Boparan have been reported to be negotiating with their pension trustee again. But we have not heard of any discussions with any bondholders at all. 

Position:

We are taking a 5% position in the Boparan 5.5% 21s at 80p/P. As per our base case we see the cashflow as sufficient in the future. We will most likely be coerced into an amend and extend, but there is even a chance that the company has done extremely well under Covid. 

Base Case: Most likely the positive momentum that we have seen before the pandemic will have continued and Ranjit and Wife will be looking to delay any approach so as to show the progress. Then, for all but the smallest players, most likely the refinancing will be more of an amend and extend than an opportunity to exit. 

Bull Case: Volumes should have spiked and while there have undoubtedly been some costs involved in handling the increase, we would expect some of those wider margins we have seen at retailers to have fed through to producers. Thus we could well imagine a very cash generative quarter - similar to Iceland (some questions still hanging over this one). The company even bought Carluccio’s last week. 

Bear Case: We find it hard to imagine a case where volumes or margins might have fallen. We are not aware of major factory closures. Surely the entire business has been declared key to the economy and aside from a new non-exec board member we have not heard of any chicken cull or similar disaster that we were afraid of at the start of the pandemic. 

Put another way: the company had limited liquidity at the start of the pandemic. Coronavirus has surely had a profound effect on food supply that are unlikely to have been all neutral, given the narrow liquidity corridor in the first place. So if these effects have not been very negative (we’d have heard of it by now), they will probably have been quite positive. 

Wolfgang