Lowell thoughts
All,
- Lowell have purchased £33.5m of the SUNS. While the IRR on the SUNs is admittedly higher than what Lowell calculate on their investments, this move hardly makes sense in the context of a company that has to find revenue synergies to pull itself back to neutral net cashflow. In our view this move is more likely motivated by potential medium-term restructuring considerations rather than optimal use of liquidity at this point.
- Lowell are still a fair distance away from paying for their capital. With FCF a black zero at this point.
- The company has been promising significant improvements from H2 of this year. While the quarter is positive overall (see comments below) we are looking forward to hearing of very concrete plans to raise profitability.
News:
- The company have purchased £33.5m of the SUNS.
Financials:
- Operating CF before portfolio purchases was £111m and due to the low purchases (see below) FCF was a positive £17m. This raises LTM FCF performance to a "whopping” £12m from which to pay some £170m in interest.
- Portfolio Purchases falling behind estimates by £25m now - remaining static on 2018 level (excl. nordic acquisition). Meanwhile the GMM is down at 1.9x indicating (as advertised) that the portfolio is amortising faster relative to excess returns achieved. Merely the two together are negative from an LTV point of view.
- The above impact on LTV is however more than offset by the Portfolio write-up, which has increased back to £58m, as per Q1. We will try to extract further intelligence on how to estimate that item in the future, given its recent volatility.
- 3PC income is right on target.
- Notably, the company’s expenses on Rent, Licenses, IT and Other remain stubbornly high and above our estimates.
- The (dreaded) Cash EBITDA figure is right on target.
- Exceptional items continue to run high as the company is integrating its businesses across geographies and product offerings, however thus far this is made up by a WC inflow, vs our estimated outflow.
Wolfgang