Douglas - Liquidity and Leverage - ahead of tomorrow
All,
Given the refi was our big exit, we have not yet updated the model / had no intention to hold the new instruments.
While we stand by all our constructive views expressed to date, tomorrow’s results should disappoint a few people. To get the deal underway, the banks have roped in every investor insight, however far-flung and uninformed. While we expect the company to remain comfortable, we are also expecting leverage to rise by half a turn to one turn, depending on EBITDA figure used.
Liquidity:
- Seasonality: In any year investors trade the name up on the buoyant liquidity in Q1 (Dec.) only to be disappointed it’s all gone in Q2 (March). We suspect this effect will be exacerbated with so many newbies in the name.
- Pandemic negotiations: Because of the pandemic Douglas may have negotiated longer payment terms with brands, which may dampen the WC outflow in Q1, but given the refinancing, we count on it to substantially occur. WC inflows in Q4 and Q1 were certainly no lower than in the previous year.
- Refinancing: The deal did not result in substantial additional cash for the company.
- Longer Lockdowns: While the online channel is certainly substantial and growing fast, the lockdowns across Europe must have continued to hurt the business in Q2.
- What we have seen in terms of analyst liquidity assessments following Q1 and prior to refinancing was far too rich.
Meanwhile, The Hut Group successfully raised $1bn in cash from Softbank, sending shares up sharply today - again 35% above IPO price in September.
Happy to discuss,
Wolfgang
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E: wfelix@sarria.co.uk
T: +44 203 744 7003