Rekeep (Manutencoop) – Q3 20 model update – refinancing in the horizon

All, 

Please find our updated analysis on Rekeep here. 

We have upgraded our Revenues/EBITDA projections slightly, to reflect the renewed commercial momentum, linked to the tenders that were held up for administrative reasons in Q2 20.  

With the recalculation of the FM4 fine downwards from EUR91.6m to EUR79.8m by the TAR Lazio court, to be paid in 69 installments from Q1 21 onwards, we see further room to absorb the Santobono fine. News on the fine is expected by the end of the year. The worst-case scenario, of a EUR10m fine and a EUR7m temporary hit on EBITDA from the tenders missed during a 6-months ban, should be affordable for Rekeep, especially given the current business momentum. We also suspect that investors will be forgiving when the news come out, given the strength of the overall high yield market. And given the available yield on the bonds vs the underlying fundamentals of the company and sector, Santobono is probably already mostly priced in.  

The bonds have recently risen even closer to the current call price of 104.5, which steps down to 102.25 on 15 Jun 21. We suspect this is in anticipation of a refinancing over the next few months, which we see as doable in the current market environment. With Rekeep’s cash balance currently around EUR50m above its YE2017 figure, the company may be waiting for a potential Santobono-related bond price weakness to step in and retire some debt on the cheap. This would further limit the price downside from this legal case. 

These cash reserves will also afford Rekeep to do a smaller issue than the current outstanding on the bonds, when the refinancing comes. This should support pricing.  

We are long the Rekeep bonds for 6% of the NAV. The Q3 20 results confirm our previous investment rationale. 

Feel free to reach out if you would like to exchange ideas on the name. 

Juliano 
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