Atalian – looking at the road
All,
Please find our updated analysis here.
Atalian has pushed out its maturity issues to June 2028. Leverage will come down slowly and will be 6.5x at the end of 2027. The new bonds are trading at >15% YTW, reflecting the tough road ahead. So far, our long trade is in credit, and we expect it to improve, but we think it will take time to play out, and we will not wait for the last point of value
Investment rationale:
- We have a long position of 4% in the 2024 bonds at 79.25. We valued the proposed package for the 2024 bonds at around 90c/€, whereas the current value is around 80
c/€. The new bonds are priced at 67c/€ on Bloomberg, but we see very little activity.
- We expect activity to pick up, but it will take longer than we hoped. We expect positive momentum after the next quarterly results (due in a month), so we will hold for now. We will review again immediately after the results.
- Our DCF valuation of Atalian gives us an asset value of 86c/€ for the bonds (YTW 14%).
- On our modelling, we see the 2024 – 2027 guidance as achievable, so for the most part, we continue to use these figures.
The exchange bonds are trading weaker than we expected:
- With the exchange bonds trading at 67c/€, the value of the package is currently 81c/€. To reach our estimate of 90c/€ would require the exchange bonds to trade up to 83c/€ => YTW 15% (vs >23% now).
- The 2024 and 2025 maturities have been pushed out to June 2028, giving Atalian time to repair its French business.
Trading will improve, but 2027 leverage will still be high.
- Trading is improving in France, but leverage will only reduce slowly. Guidance in 2024 is for small growth at best. Margins will improve slightly on the back of cost recovery. However, management has warned that the coming minimum wage increase in France may not be fully recovered immediately.
- During the restructuring process, management gave a broad outline of expectations to the end of 2027. We have used this as the basis for our modelling as we see the parameters as achievable.
- To refinance at 5.0x would require EBITDA of €163m vs our forecast of €127m.
- We will update further once the Q1 results are in and the noise around the restructuring has died down.
I look forward to discussing this with you all.
Aengus
T: +44 203 744 7055