Intralot - Inc. vs. ROW, to convert or not
All,
Please find our updated analysis of Intralot here.
If the management case had substance, arguably the company could refinance in this market. Clearly, that is not the case. But While we have made some adjustments, we have kept the overall case intact to keep it recognisable and to integrate with the wider discussion out there.
The model:
We recommend sensitising in particular the assumptions for the ROW part of the group, which the management case has bouncing back in 2021 under very aggressive assumptions. The model does currently not reflect a fully sensitised case, but we encourage everyone to play with it / call us to discuss.
Inc. vs. ROW:
The published data on both parts of the group does not include the deal that needs to be struck to supply Inc. with the benefits of R&D and servicing. We have made some assumptions around such a deal, but are open to suggestions. Notably, we have also made some changes to the CapEx assumptions.
To convert or not:
Overall, absent any coercive mechanisms around the proposed 24s exchange, we would not willingly exchange any bonds into US subsidiary equity. Mathematically the recoveries are the same, but the argument that the minority equity would be insulated from ROW woes and receive a direct pay-out in a sale of Inc. seems to pale before the negotiating power of coupons and maturities.
Positioning:
We continue to hold our 4% of NAV position in the 24s with a view to exiting at least with a 6-handle. In our view, the market undervalues ROW, which does however hinge on a number of critical assumptions. Also, the negotiation with the company and the 21s is still ongoing.
Here to discuss,
Wolfgang
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E: wfelix@sarria.co.uk
T: +44 203 744 7003