Boparan - Sarria Daily Comments 10/11/2021

The UK competition authority believes that the various poultry interests of Ranjit Boparan could be viewed as a single entity despite the assets being held in different legal silos. It has launched an investigation under UK competition law and could order capacity disposals. In our recent email we commented that the rationale for the recent purchase of Banham poultry by the Private Office of the Boparan family could be a vote of confidence in the future of the UK poultry industry or a stick for bondholders if there were liquidity issues in the future. This view hasn't changed. We remain short Boparan via CDS, as we see the near term outlook as very weak. However, we see the company having ample liquidity as we expect it to have drawn its RCF before its July year end. The company will report results for the FYE July 21 on 25 November 21 allowing us to update the liquidity position and to get more insight into the impact of cost headwinds in Q4 and Q1 of this FY.

- If the CMA find that the various assets are one entity, it could then require Ranjit Boparan to divest of some poultry capacity held in the family’s portfolio. The investigation process can take up to 24 weeks with an 8-week extension at the CMA’s discretion.

- In addition to the poultry processing operation, Banham operates farms. The vertical integration opportunity in the supply of chicks/breeding birds/broilers may be attractive to Ranjit Boparan, even if he was required to divest of the processing assets. Currently PD Hook is the main supplier of chicks to the Hook 2 Sisters JV (50% owned by each party). This is turn provides over 90% of the chicken used in Boparan Holdings business. Owning the farming capacity of Banham would provide additional supply chain capacity even if the processing assets were sold.