OHLA – The basics.
All,
Please find our slightly updated model here.
OHLA is well down the path to completing its restructuring, and today’s operational results show that the company is continuing to perform, albeit slightly below our expectations. OHLA is performing the basics well, but as we have noted in the past, the re-emergence of the concessions business needs watching to ensure failed construction projects are not flipped into this division. We also remain sceptical that the €50m additional equity will be raised on the market or via a convertible. Our thesis is unchanged with the Q3 results. The recapitalisation buys the company time to complete the asset sales, and the operations are not dragging it back into trouble.
Investment Thesis:
- We hold 2.7% 6% of NAV in the SSNs and consented to the restructuring proposal. We expect 22% of our exposure to be amortised at closing, with the remaining 78% extended to December 2029. Including fees, the entry price is 93.5c/€; the upside is 5 points if the new bonds trade at 14%, and the downside is 3 points if the yield moves to 16%.
- The remaining exposure will be exchanged into a new bond maturing in December 2029. The cash coupon is 5.1%, and the PIK portion starts at 4.65% (vs. 5%), rising to 8.95%.
- The bonds will likely only trade above par once the Canalejas sale is completed
- We are sceptical that the last €50m will be delivered and will almost certainly need to come from a Convertible bond. If this additional cash is raised this would equate to around 2 points of further upside.
- The bond restructuring will be done via an exchange as OHLA passed the 90% approval required (93%); bondholders now get an extra 50bp consent fee. Given the alternative, bondholders were always likely to support the deal.
- The entire transaction could still fall apart, although we think this is unlikely, in which case both bonds will trade at around 70c/€ (in line with 2021).
Q3 Results were a little weaker than we forecast:
- Revenue of €940m was below our forecast of €967m on lower-than-expected Construction revenues, but the order book remains strong. EBITDA was €29m vs our forecast of €40m. EBITDA was reduced by the lower topline, and Construction margins were 4.2% (70bps beneath our forecast)
- OHLA is harvesting cash to ensure it has liquidity. We expected an outflow in Q3, but working capital inflows were €37m, mainly in lower receivables.
- We haven’t changed our expectations after this quarter, but we will update our model after the recapitalisation is completed.
I look forward to discussing this with you all.
Aengus
T: +44 203 744 7055