Boparan – History repeating itself.
All,
Please find our unchanged analysis here.
Boparan is nearing the refinance of its Nov-25 bonds, and as in the past, the company has significantly improved performance in the last year. We expect refinance to happen by November, and like an MP, the Boparan team can put bondholders on the back burner for another four years. We will follow the name through until the new deal, and decide whether to put it on the shelf. If we stick with Boparan, we will update our model using the information we gleaned from the new Offering Memorandum.
Investment Consideration:
- We missed going long the Boparan SSN, as the market reacted swiftly to the strong Q1 FY24 results.
- The notes trade at 94p/£ and will return 9% if the refinance happens in early November.
- Liquidity in the bonds will be limited. Boparan has a long-standing following in High Yield, and investors will already be positioned for the refinance.
- We expect history to repeat itself, with the current LTM EBITDA to be the high point, and for pricing pressures to reassert themselves after the new issue is done.
- We expect the bonds to be under pressure in the quarters following issuance and will review our stance then.
FYE24 Q3 results were stronger than we expected:
- The Q3FY24 results were stronger than expected as Boparan once more produced the proverbial chicken from a hat in a refinance year.
- EBITDA of 5.7% (£45.2m) in the quarter was 200bp ahead of the prior year. Q4 margins will be lower as the positive impact from Q4FY23 drops out.
- LTM EBITDA exceeds £150m, well ahead of the £135m run rate used in the previous refi and will allow the company to market a headline net leverage figure of 3.1x. We are modelling FY24 EBITDA at £150m.
- Free Cash flow of £33m allowed the repayment of the £30m RCF drawings.
- Headline leverage is 3.1x, including factoring the figure is 4.1x; the LTM EBITDA of £158m is a significant advance on the £89m in FY23. FYE24 EBITDA will be closer to £150m as a very strong Q4FY23 falls out.
- Management expects a better European performance next year but provided little detail. We expect the supermarkets will want any further poultry margin gains to be shared via lower prices.
Boparan in full refinance mode:
- The refinance will likely happen in late October or early November (the same as the previous one). A summer deal would indicate management is concerned about when the pricing pressure will return.
- Under either scenario, the FYE24 numbers will not be out, but Boparan will provide some proforma data and a steer as to how the first quarter has gone.
- From comments on the recent Investor call, a CDS orphaning event is not part of current management plans for the deal structure.
- Boparan is looking at £ or € issuance (or both), but we would be surprised to see € given the familiarity from £ investors. Boparan has said it would consider an FRN tranche.
I look forward to speaking to you all on this.
Aengus
T: +44 203 744 7055