Stena - initiation.
All,
Please find our analysis and IM here.
We have modelled both the restricted and unrestricted group by division, including required transfers between the groups, and analysed the legal waterfall and game theory. In short, we see the bonds covered by the value of the assets and see sufficient liquidity for the coming years as well as further borrowing options. Furthermore we regard the continued family support/support from the unrestricted group to the restricted group as a given.
Stena is a family-owned conglomerate based in Sweden. The company operates a diverse range of businesses including ferries, LNG tankers, crude and product tankers, drilling rigs, Swedish real estate, and a small private equity arm. Stena also owns a small portfolio of real estate assets outside of Sweden.
Following the 2015 oil price crash, which severely impacted the drilling rig division, Stena has injected cash into the restricted group from the unrestricted group on two occasions. Management and the family have continued to reiterate their commitment to supporting the restricted group in the future.
As Stena operates in several sectors where the underlying value of the assets do not correlate immediately with short term EBITDA fluctuations (ferries, tankers, roro shipping, drilling rigs, and residential real estate), FCF generation may provide an incomplete picture of the group's valuation and solvency. A significant portion of the capex is also for new builds in ferries and residential real estate, at least until 2024, which must be excluded for the purpose of steady-state FCF estimates and some of which should be partially financeable.
We are thinking of taking a 6% long position in the Stena with a view to realising approx. 10% yield this year. We are most likely looking at the USD Unsecured bonds, at a price of 100.5 (YTM6.9%) on the basis that the EV more than covers all existing and future debt we see being raised, combined with its diversification and anchoring in the Swedish establishment. An alternative could involve the CDS contract referencing that bond / Stena AB.
As always, please reach out if you want to exchange ideas on Stena.
Juliano
T: +44 203 744 7055