Modulaire Group - Reviewing the situation
All,
Please refer to our unchanged analysis here.
While VAPS continue to drive strong LfL growth and the IPO remains in discussion, we are now urgently looking to sell our legacy position in the 8% SSNs.
The first-quarter operating environment for Modulaire Group was challenging with further Corona virus-related lockdowns and a longer, colder than expected winter in the Nordics. Despite this, the company demonstrated a remarkable performance. Top-line growth was 14% organically (28.4% including acquisitions). How long this pace can be maintained is unclear right now. Management declined to discuss the timing of the review being undertaken by TDR regarding the capital structure of the business including the possibility of an IPO. We feel a set of figures like this allied with the expected boost to construction from government infrastructure spending from H221 will have TDR “reviewing the situation" an IPO.
Sales were EUR303m, slightly behind our forecast due to additional covid restrictions having taken effect. On a per-unit basis revenue rose 8% to EUR259pm leading to a sales increase of EUR30m. Value-added services (VAPS) rose 13% to EUR88pm accounting for EUR12m of this rise. This will continue to be a driver for growth as VAPS is rolled out to acquired businesses (like FAE in Italy). Base rent rose by a more modest 3% organically to EUR171pm, adding EUR4m in organic revenue growth. Rent per unit was also boosted from larger boxes owned by acquired businesses. Finally, acquisitions added a further ERU14m in Revenue. The increasing penetration of VAPS (52% vs 50% n Q120) is helping move Modulaire away from the commoditised box rental market.
A return to 2019 gross margin levels and control on SG&A costs pushed adjusted EBITDA up 43.7% to EUR97m (over 2019 the rise is 70%). EBITDA margin rising from 25.8% to 30.2% since 2019). Capex included EUR34m of growth capex vs EUR14m last year and the company spent EUR21m on M&A both measures underlined management confidence in the strength and sustainability of the rebound.
Liquidity at company level is perfectly adequate. Cash on hand at quarter-end was EUR156m. Previously EUR103m of the cash had been held outside the restricted group, but this was returned in December 20 further de-risking the company.
Positioning:
We maintain a legacy position in the call constraint 8% bonds, earning a little bit of running yield. We will be reallocating to another opportunity soon. Call protection steps down in February to par and in IPO prospects die, bonds will drop 2% in the next half year.
Aengus
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E: amcmahon@sarria.co.uk
T: +44 203 744 7055