Standard Profil - Slow Momentum

All,

We have recently updated our model on Standard Profil, so post Q3 numbers, here is a short update.

Nothing in this set of numbers is going to change the fundamentals for Standard Profil. The business continues to make small progress, and we can model a marginal deleveraging over the coming years. But this comes from EBITDA growth, with minimal actual cash deleveraging expected in FY24 and FY25. With bond maturity in May 2026, the Company needs to break out of its €70-90m EBITDA range in order to facilitate a comfortable refinancing.

With limited debt ahead of the bonds and current purchase multiple c. 3.3x, bond recovery should be relatively high. 18% yield to maturity compensates investors for the current lack of cash deleveraging.

Investment Rationale:

- We maintain our 5% position we took in March 2022 at 80%. We had expected the bond to re-rate further on the back of the cost compensation agreed with the OEMs in May. Although it has traded up 10pts since then, we would have expected the bonds to trade at c.15% YTM, which is a further 5pts of upside.

- We acknowledge the majority of the deleveraging is on the back of higher EBITDA, with minimal cash deleveraging expected during FY23 and FY24.

- Cash generation is a concern for us. We have outlined our concerns to management and they are aware of our difficulties in modelling a strong enough uplift in profitability. The Company are in the process of forming a budget for FY24 and we had expected the Company to share these plans at Q3 numbers. However, the Company stuck to their policy of not giving any guidance for FY24 until the Q4 reporting season next year.

- Our projections come out at the bottom end of the Company’s reiterated guidance, but with some VW production issues resolved, the Company should hit their FY23 target.