KME - Exposed, positioning
All,
Please find our reworked, analysis on KME here.
With the copper price surging, our analysis of company liquidity is focused on trying to understand the moving parts in KME’sworking capital. In our view, Factoring lines along with LC lines are fully used and the company is fully exposed to copper price rises.
More liquidity is needed:
Our model has the company needing its borrowing base facility lenders to increase their exposures by €200m over the coming quarters. We see this as possible given the security over copper and client payables. However, we are not certain that the current environment has banks keen to increase commodity exposure.
Thesis and Positioning:
Our thesis remains that KME will secure the necessary financing. The world is awash with liquidity and financing secured over commodities should be possible. However, with a cash balance of no more than E67m, that financing would have to be 100% and the binary nature of the banks increasing or not and the lack, so far, of success in sourcing capital elsewhere, require us to reduce risk in this position for the time being by a half. As further detail emerges, we may be looking to resume a full position on the name.
Results call for clarity:
We expect Q4 numbers next week and management may be able to give comfort on facility availability and to reiterate the possibility of an Italian state-backed loan. We also wish to speak with management about its working capital management and the relationship between internal and external capital.
We are happy to discuss.
Aengus
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E: amcmahon@sarria.co.uk
T: +44 203 744 7055