United Group – Taking a breath – Positioning
All,
Please find our marginally altered analysis here.
United Group (UG) generated enough cash to repay the 2024/2025 bond maturities by selling its tower's business. The €476m PIYC notes are the next maturity, in Nov-25. Management will have to find a way to deal with the subordinate notes. We expect them to be refinanced, or tendered for at a premium to today's price. The question is when.
Investment Rationale:
- We are replacing our 5% of NAV long in the 4.875% 7/2024 SSNs with a 3% of NAV long in the PIYC. We expect to enter the trade at 80c/€ and are targeting a return of 17% per year over 18 months.
- There is an upside in the PIYC, they could be called at par rather than a sub-par tender.
- The position is not without risk. The PIYC are small and a potential restructuring could see them struggle between the SSNs and the equity. However, even such a scenario would likely require fresh cash from the sponsor as well as improved conditions for the SSNs. So we think it far more likely that the company sells another asset to raise liquidity for the refinancing.
- Overall we are confident in the assets and the company’s ability to defend its margins in the medium term. We see United as a good company with too big a balance sheet.
There is equity value in UG:
- The SUNs are covered in our valuation of UG.
- Our most recent DCF valuation for United is €4.7bn (5.7x 23 EBITDA). With the cash from the sale of the tower business => an equity value of €570m. There is potential additional value in the media assets, which would normally be priced at closer to 9.5x.
- For BC to walk away from the company after investing nearly €1bn and acquiring assets like Wind Hellas makes little sense to us, particularly as the SUNs are only €460m in size.
How and when to refinance the subs:
- A tender 90c/€ into a 2030 note at 5% cash and 4% PIK. Such a tender would offer 10-12 points of upside from today’s price. Assuming a Nov-24 refinance => 17% pa.
- UG may call the PIYC, but we would expect some pain to be shared out.
- Management will not be in a rush, and nothing may be done until Nov-24. The PIYC maturity is in November 2025 and will likely be dealt with at the same time as the €1bn of SSNs that mature in Feb-2026.
I look forward to discussing this with you all.
Aengus
T: +44 203 744 7055