Antolin - Hanging around the hoop
Dear All,
Please find our new analysis on Antolin, here.
While we think in the current recovery mode for car sales - Antolin will show signs of growth in the medium term. However, given its current leverage and ambitious goals for growth as part of its Transformation Plan, it is still a “show me” story with high execution risk. The key to the story is how supportive the existing lenders will be to the company and its shareholder as debt maturities approach. Antolin requires factoring and guarantee lines for its core business. It needs its lenders more than its bond holders therefore we are concerned, given the jurisdiction, lenders will get preferential treatment in any process.
Investment Considerations
- We are not taking a position in the Antolin structure yet.
- 2028 Notes : At the current trading price of 80% (YTM of 9.9%), we feel that the returns are not high enough given the material execution risk associated with this story but as we get closer to 2025 - we may or may not get involved in the notes depending on the above progress made by the company. Based on the trajectory of the backlog (88% of the 2026 target booked) and their FY 2023 results, we are convinced of the company's need to exist and its relevance as a supplier to its clients. However we feel it is still early as to whether they are going to meet the targets in their 2026 Transformation Plan (EBITDA needs to increase by 83% over the next three years) to facilitate a full refinancing of the capital structure including the 2028 Notes. The biggest driver of this would need to be an improvement in EBITDA margins from 8.1% to double digit %.
- 2026 Notes: At the current trading price of 93% (YTM of 7.1%), the notes are not compelling for us yet and we would wait for a pullback in the price to become more constructive on the notes. At the current EBITDA trajectory of €328 million, we have a stronger conviction on the 2026 getting refinanced long with the Senior Credit Facilities, RCF & EIB facility (at a projected senior secured leveraged ratio of 2.0x).
- All eyes are on hitting the goals of the Transformation Plan. If the company falls short of that, it would find it challenging to refinance both the 2026 and 2028 notes together. In that scenario, Antolin would focus on refinancing the bank debt and 2026 notes first who may ask for better economics which in turn would lead to a layering of the 2028 notes.
- We may get involved in either of the notes if they trade wider as we believe that Antolin will recover sufficiently in time.
Current business continues to evolve
- Antolin (along with its peers in the sector) wants to move up the value chain and increase the technology content of its products which would have a positive impact on its margins.
- The company’s product systems division will remain its core business but can only grow in line with car sales in the industry (we are assuming no material shift in market share). The only positive here is continued scope for cost cuts and rationalising its manufacturing footprint which is within the control of management.
- Antolin’s Technology Solutions division is the future of the group and the key to increasing margins to the double digit level however it is more R&D intensive and more challenging to predict going forward which is where the execution risk lies.
- The size and ease of the refinancing of the 2026 and/ or the 2028 notes will therefore depend on the revenues from the Technology Solutions division growing by at least 12% per year over the next three years which would help the company grow its overall revenues by 30% in that same time frame and thus raise EBITDA to €600 million by 2026.
Housekeeping
- The next catalyst on this name will be the full reporting of the FY 2023 financial results on the 18th of April 2024 which may prompt a reaction to the trading levels of the bonds and our views.
- Given the recovery in the sector, we expect to see similar trends in the company’s KPIs in the near term in 2024 with some colour around non-core asset sales.
Saahil
T: +44 203 192 0200
www.sarria.co.uk