Atalian - Rolling with the punches.
All,
Please find our updated analysis here.
Atalian is again struggling to pass increased costs through to French clients. The impact will hurt this year’s results and will continue to weigh in 2025. Lower pass-throughs represent another punch in the face for Atalian, but not a knockout blow. We are maintaining our long position as the recent fall in bond prices is overdone. We would like to see the CEE business sold with the Belgian assets folded into France allowing management to focus on what they are good at.
Investment Rationale
- We have a long position of 1% in the 2028 bonds at 79c/€, the current price is 50c/€, and we see fair value at around 85c/€ (down from 90c/€ at the time of the restructuring).
- We see a couple of points of downside at most (given the liquidity) and 20 points
- Despite the low trading price, we are not increasing our investment as we do not see a catalyst for a rally given the expectation that 24Q3 results will have the same weakness shown in Q2.
- The current trading level of 50c/€ implies a market valuation of 5.4x 2024 EBITDA of €80 (the low end of company guidance). A price of 85c/€ implies 6.6x our 2027 EBITDA forecast.
- Atalian has adequate liquidity from cash on hand and up to €60m in earn-out payments expected next year).
- It has also successfully renewed its factoring line at the same level (and on substantially the same terms)
- On our modelling, we see the 2024 – 2027 guidance as achievable, so for the most part, we continue to use these figures.
Failure to pass cost increases has arisen again:
- An inability to pass through higher costs to clients in France continues to drag on Atalian’s results; the company also admitted that full recovery of higher wages will not happen in 2025 either. Under recovery is a problem for everyone in the industry, but not everyone is as stretched as Atalian. EBITDA margins have fallen to 5% in the French business (traditionally a higher margin market for the company).
- This year, French cleaning industry staff and employers agreed to a 3.2% pay rise; so far, Atalian has only been able to pass on around 50% of the higher costs to clients. The pay increase was more than the 1.13% increase in the French minimum wage, further hampering the pass-through of costs. Atalian company has also suffered from increased social taxes (also not being fully passed through).
Liquidity is strong, but no RCF yet:
- Atalian had €98m in cash on hand on 30 June, and we expect the company only to suffer modest net outflows in H2.
- The €250m factoring line (€230m drawn) maturing in mid-September has now been renewed at the same size with no major changes in the terms. We were not surprised at the renewal, as the banks had stayed with the business during the restructuring, so tipping it into insolvency now would be perverse.
Franck Julien has left the room, sort of:
- After his conviction in June, Franck Julien transferred his shares in Atalian to his wife, Sophie Pécriaux; we see this as largely cosmetic with little by way of change of control.
- Management admitted that the restructuring process and the trial of Julien had weighed slightly on renewals, but they declined to provide any details until the FY24 numbers.
-Despite inflation in France at well over 2% this year, revenue is flat, indicating that volumes are lower although not catastrophically. Our calculations suggest renewal rates around 90% (assuming 3% inflation in pricing and 16% renewed. Atalian expects renewals to improve in H2.
Happy to discuss,
Aengus
T: +44 203 744 7055