Vallourec - comment

Vallourec continues on its path back to Investment Grade and it is its call constraint nature that is keeping the bonds at 8.5% yield.  All metrics point to a return to IG, with the Company enjoying similar prices per tonne as Q4 (which was the highest over the last 10yrs). EBITDA from the mine is still subdued, but Vallourec received the necessary permissions from the state authorities to return to full production from May 5th, which will boost EBITDA and cash production from this segment.  Gross leverage has reduced to €1.9bn (net €1bn), leaving net leverage at 1.0x.

The only potential fly in the ointment is from tubes pricing in the US.  US activity has started sluggishly, with pricing a little lower than H2 22.  However, margins still remain robust and with drilling activity outside of North America increasing, pricing continues to rise across all other major geographies.  Combined with the return of full production at the mine, it is not surprising that management are expecting an improving EBITDA and lower net debt in FY23 versus FY22.  Bondholders, enjoy the carry prior to the inevitable call.