e-Dreams - equity vs credit markets
All,
Ahead of the results on Thursday, please find our updated analysis here.
e-Dreams is not the only name with a very different allure to equity vs. credit investors. The bonds still trade below par, even though the equity has them more than 2x covered through EV. Admittedly, that EV is sensational vs only 16 months ago, but for a market-leading online company in a space that will largely rebound - be it this year or next - that may even be justified.
From a credit perspective, this is one of the more comfortable names we are exposed to. - even among those trading below 10% yield. Away from the deep value coverage that should allow the company to issue equity if it needed to pay down debt, management have temporarily dropped the fixed cost burn rate by nearly one half. Even if that needs to return somewhat ahead of volumes (to service them) we struggle to model a scenario where the company runs out of cash this year. I.e. given its negative WC, it would be afforded a second season to make money and sustain itself.
Working Capital is a very important topic for e-Dreams and given its varied revenue streams, there remains a latent risk that we may have gotten some of the projections slightly wrong. But even allowing for some room in this respect, we see no reason why the bonds would not be refinanceable next year.
Late last year we made the somewhat early decision to sell our equity at E3.60. But we remain long the bonds for a small position of NAV and are debating an increase to that position with a view to earning a yield of approx. 10% into refinancing next year.
Wolfgang
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E: wfelix@sarria.co.uk
T: +44 203 744 7003