Boparan - pre-agreable now
All,
Please find our updated analysis here.
The price of £246m for Fox’s Biscuits is almost exactly the £250m we had assumed in our analysis, but we are still surprised to see the deal go through now. We hadn’t deemed it necessary to get a refinancing deal underway, but perhaps it is helpful to otherwise achieve the terms the Boparan’s are looking for from the HY market.
Uses of Cash:
- The completion of the sale by end of the month means that the money will be available to reduce the size of the required deal to roll the bonds and therefore increase its likelihood further over an amend and extend type deal.
- The new bond may therefore be only £350m and therefore could find enough demand in this environment to achieve a pre-agreed deal with the real-money holders still in the name.
Limited leverage impact:
- We have leverage falling from 6.5x 2021 EBITDA of the advertised £150m to 5.6x post transaction on an (hopefully conservatively) assumed £130m post-sale. In each case the company should deleverage by half a turn over the next year - subject to any changes in supply contracts, we believe.
- For lack of further detail we are assuming that the Bakery division contributes zero (Sales and EBITDA) going forward. Clearly Gunstones produces sales, but how profitable it will be - considering 2 Sisters will retain one of the three Fox’s plants - remains to be seen.
- From an interest coverage perspective, we have the company at 2x going forward (giving full credit to the PF adjustments, which we do not doubt will be achieved if for reasons we are concerned about). Depending on the coupon on the new bonds the new deal could ultimately be attractive for a while, particularly if the deal comes soon - this year - still reliant on extensive Pro-forma adjustments.
Sum of the parts valuation:
- Our sum of the parts valuation is conservative, but at any rate, has jumped some 10 pence to just over par.
- Merely for reference: The proceeds are the size of the pension deficit.
We are therefore confident that the bonds will be refinanced and continue to hold our position of the time being, possibly looking for an exit into the transaction, rather than waiting all the way for it.
Wolfgang
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2 Stephen Street
London W1T 1AN
E: wfelix@sarria.co.uk
T: +44 203 744 7003