Maxeda - The Other Angle - Positioning

Dear All,

Please find our updated analysis on Maxeda here.

We are becoming increasingly concerned about Maxeda due to the continued decline of non-weather sales especially in the Belgian Big Box stores as expressed on their August results call. Consumer confidence in the Benelux has improved slightly this year but still remains negative. Unlevered FCF has persistently remained thin and time is thus running out for a recovery that would enable the company to refinance the SSNs (maturing Mar 26) at par. We expect an LME to gain momentum later in the year but do not rule out a more formal process under the Dutch WHOA or UK RP.


Investment rationale:

- We are unwinding our 5% long position in the SSNs (bought following the Q4 results at 80.5%) to 0%. Our rationale reflects a mixture of the persistent declines in the sales of non-weather related products YTD.

- We see no immediate catalysts over the short term to justify a long or short position. We are monitoring the weather, noting also that October and November are the rainiest months in the Benelux, which limits a positive weather surprise to an unlikely early heavy winter.

- Over the past decade, margins have remained relatively stable, suggesting the business is viable and the key problem is leverage. Liquidity is also reasonable at €140m limiting a liquidity-driven event.

- Management should seek to restructure the balance sheet, as the company is unable to grow into the capital structure in order to refinance the SSNs (Mar 26) at par. Out-of-court options should be explored first and we view a debt-for-equity swap (akin to TAKKO) as the most likely outcome. However, we do not rule out a more contentious process utilizing the Dutch WHOA or Uk RP. Our valuation supports bond prices in the low 70s and we bonds should gravitate lower when the market realizes that a simple A&E process is not applicable and a cut in debt stack is required. This should create the typical forced sellers and repricing of risk. After appropriately discounting our estimated recovery by 15%, we view 60 cents as a ceiling below which we would become more positive and rebuild a long position. 


Out of Jail:

- In order to avoid a restructuring the company would need to show the market that it is capable of generating at least €70m of unlevered FCF to comfortably cover a 10% plus coupon. The company has not come close since FY22/23 when it generated €60m of FCF on €103m of EBITDA and over €1,500m of revenues. The company is quite far from that mark, and with the current momentum unlikely to meet it.

- Unable to hold on to the benefits from the purchasing alliance with Leroy Merlin, the company does not seem to have another lever to pull. An apparent attempt at selling the Belgian business in late 2023 also seems to have borne no fruit.

Recent results:

- Although consumer confidence improved through 2024 it still remains negative at -23 (NL) and -1 (BE) Maxeda’s YTD performance echoes this. Q2 24/25 (ended July 24) LFL sales were down 7% YoY , driven by weather-related products (-16% YoY due to bad weather rainy June) and non-weather (-2.6%). The weakness was concentrated in Belgium with Brico experiencing a LFL 17% YoY drop in weather-related sales and a 4% decline in non-weather. Big Box BricoPlanit was also weak (-16% and -7%), reflecting weakness or big ticket items (e.g. kitchens, bathrooms). The Netherlands fared slightly better with Praxis registering a LFL decline of -14% in weather and a small 0.4% gain in non-weather.

- On a YTD basis combined, weather was down -6% and non-weather down -1.6% due to a more favourable weather in Q1. Weather-related results improve dramatically if August is added (-2%) because of the hot weather, but non-weather slightly falls, suggesting a problem. This is somewhat supported by the fall of overall volumes by -5.7% YTD through July, while pricing was up 1.6% respectively. The split btw weather and non-weather was not provided.

 - Gross margins improved 80 bps Y/Y to 37.7% (50 bps due to less discounting and 30 bps due to the increase in the selling prices over cost inflation). In selling and distribution, Maxeda offset €5m of inflation with improvements in labour productivity (+€4m), lower energy costs (+€3m) and store closure savings (+€3m). Another boon to margins is a sourcing agreement with Leroy Merlin earlier this year, which allowed private label brands from the French chain to be sold in Brico and Praxis shops. Leroy Merlin also has a significantly larger purchasing team which enables both companies to leverage scale.

  

Happy to discuss

Glenn 

E: gzahn@sarria.co.uk

T: +44 203 192 0200
www.sarria.co.uk

Glenn ZahnMAXEDA