Cerba - all a little quick - Positioning

All,

Please find our unchanged analysis here. 

A lot has happened since we took a short position in early February across Cerba’s capital structure. There were rumours, counter-rumours and eventually a statement from the Company stating that Cerba, like any other company, has regular discussions with advisers about its capital structure. The statement about the CEO leaving immediately, less than 1yr into his tenure, was categorical and added to the view that Cerba is in a difficult position. However, with no near-term maturities, the timing is right to exit the position. 

Investment Rationale:

- We went short Cerba in early February, taking a 2% short in the seniors at 88% and a 1% short position in the subs at 68%. Today, we are covering those shorts at 80% and 39% respectively, locking in 8pts and 29pts respectively. Our negative view is that the market expectations of high volumes seen in FY23 and FY24 were flawed and that both volumes and pricing is going to be lower in FY25. Our model projected only modest deleveraging over the medium term, with a slight uptick in FY25.  

- However, we did acknowledge in February that there was no trigger, and Cerba has sufficient liquidity for the next two years.  

- Therefore, with the senior bonds now trading at 11% we see limited downside from current levels. The subs are very vulnerable given their relative size in the capital structure, but without an event, we don’t envisage how these bonds can trade lower in the short term.  

- The speed of correction in Cerba is quicker than we anticipated and although we remain negative, it is prudent to take profit now. 

Next Steps:

- The Company are due to report its Q4 and FY24 numbers on Monday 28th April followed by a conference call on Tuesday at 9:30.  

- We don’t expect Cerba to have found a replacement CEO by this stage and therefore we would not expect any strategic decisions to have taken place by then. The Company are likely to report poor numbers but we don’t envisage any clarity on whether the Company wishes to pursue any liability management exercise in the medium term.  

- Cerba will see very limited impact from the current tariff debacle in the market and although we don’t expect the bonds to rally, we view it as prudent to take profit in the name now.  

This short-covering trade in Cerba should be viewed in conjunction with us taking a short position in Kem One.

Happy to discuss.

Tomás

E: tmannion@sarria.co.uk
T: +44 20 3744 7009
www.sarria.co.uk