Pro-Gest - E35m EBITDA unsealed

All,

Please find our updated analysis of Pro-Gest here

Montova:

Police last Friday removed the last seals from the purifier and north facade - following the lifting of the final seizure. We understand there are no more restrictions and are awaiting the start of production. Pro-Gest continue along our projections and the Mantova plant is due to start production. The cash balance is low, but reasonably stable and in particular could be boosted with sales from Mantova, which holds some 4 months of wastepaper raw-material on its premises (already on balance sheet). So despite the likely start-up costs of the plant, we think that an unwind of that position should contribute to the cash balance in H2.

Operations:

Except for Mantova, which has yet to start, all plants have ben running during the pandemic and the company only went through its periodic shut-down in August 19. So while the pandemic is under much better control in Northern Italy now, the operations are not impacted. The company is currently selling all its inventory on a running basis and has excess inventory and excess volume on the side-lines.

Pricing:

As regards paper pricing, many mills have taken the opportunity this year to shut down in August for general maintenance. So it is possible that industry-wide excess inventory may not be running as high as would usually be the case in such an economic environment.

Refinancing:

On the Q2 call, the company had alluded to efforts to raise the liquidity of the company together with CS. Clearly such a measure would be a strong positive for the bonds and the company’s financing arrangements could greatly benefit from abetter financing structure. However, our thesis is not predicated on a transaction materialising.

We continue to hold our position in the holdco bonds with a view to benefiting from the final Montova start-up as well as a turnaround of the liquidity position.

Wolfgang

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2 Stephen Street

London W1T 1AN
E: wfelix@sarria.co.uk
T: +44 203 744 7003

www.sarria.co.uk

Wolfgang FelixPROGEST