Pro-Gest - taking position

All,

Having modelled the operation in apparently more detail than management believe they have disclosed, we have been increasingly constructive on the name as the momentum is very much with the company. Positive developments include the license for the operation of the Mantova plant at 400kt and the stretch of anti trust fine over 30 instalments. 

Moving parts:

- The investment of E13m in Q419 into a real estate company AMG Spa (the initials of Zago’s estranged wife ?!) represents a red flag in times like these. Still no intelligible comment from management.

- Payments are piling up in Q2 with E20.5m amortisation of mini-bonds, E2.4m of loan maturities and Bond and other interest of E5m = E28m outflow.

- Cash was E63.7m at end of May (stable over the last 2 months, E25m of which at Vila Lagarina. However the cash within the group seems to be movable. And Zago at least says he wants to pay all payables as they come due. Management insists that the remaining amounts of E80m under the uncommitted RCF remain drawable.

- Management stated that the ramp-up of the Mantova plant would not consume significant liquidity. We find that hard to believe and there seems to have been some netting against the low-priced raw material excess inventory in the calculation. We may be taking down our estimates, but will continue to factor in start-up costs.

We are going long the 2024 3.25% bonds for 4% of NAV as a number of our key concerns have been addressed. We’ve last seen the bonds at 65, but will use a post-call price when we see it. We expect liquidity to be under significant strain this summer and will be publishing a detailed model of the operations / financial projections later today. However, the company is on a positive trajectory and even Italian banks won’t pull the plug now. 

Wolfgang