Vallourec - Realignment of balance sheet - Positioning

All,

Please find our existing model here.

Vallourec continues to benefit from its strong tubes business, coupled with the return of operations at their mine driving improvement in their Revenue and EBITDA. The Company projects a further reduction in Net Debt in H2 with positive cash generation. Despite a reduction in US rig count, the Vallourec have reconfirmed their full-year guidance, and more importantly their desire to further deleverage and cycle-proof the business and balance sheet.  

We remain positive on the name and believe investors are rewarded for the risk at the current 8.5% yield offered at the current mid-market price.  

Positioning:

However, there is no convexity with the bond currently callable, and therefore we have been exiting the name in lieu of other opportunities - notably to fund the ASDA position. We see limited downside in the bonds but we have been expecting the Company to call the bonds imminently. The correct capital structure for this Company is a larger RCF with limited fixed debt. We will continue to keep an eye on the name, but for now, we have exited the position.

Happy to discuss.

Tomás

E: tmannion@sarria.co.uk
T: +44 20 3744 7009
www.sarria.co.uk