Takko - All of it
All,
Please find our updated analysis of Takko here.
So Takko have not exactly been honest with us last year. First, in spring 2021 we were shown a presentation with a liquidity slide that at the time of presentation management will have known to have been far exceeded already. Then, in summer when the new financing was presented, nothing was said about the “facility B” accounting for the entire €80m. Extrapolating further, we think the entire capital structure may effectively need refinancing before May.
Where did all the cash come from?
- Since early last year, we have repeatedly predicted and then observed the tremendous stability with which Takko and other discounters would navigate the pandemic.
- The early 2021 injection was not required due to gigantic losses Takko might have suffered, but due to a liquidity crisis as the company had been unable to sell its AW stock and needed to pay for the spring merchandise.
- Cash when in, stores opened earlier and better, payments were made a little later and the AW merchandise, which had never been unwrapped/shipped to stores and back, did not require another payment in Q3, thus selling at full price and contributing significantly to the large cash balance Takko enjoys today.
€200m EBITDA?
- If you’re wondering if we’ve lost it, we are not quite sure either. But once Takko cycle through Q123, the LTM EBITDA drops a deeply negative performance in Q122. If Takko manage a strong Q123 to April, then €200m LTM EBITDA are perhaps a one-off, but an astonishing achievement at any rate.
- We see EBITDA closer to €150m going forward again, but in any event, the refinancing will have to come earlier.
May refinancing:
- So we are told that €80m will need refinancing. Takko will need a new RCF - if only to deal with another set of pandemic restrictions.
- However, we’ve seen parts of the Sr. Financing on offer in late 2020 and if a significant amount of it traded, we think it will have traded to substantially the same accounts, which could require replacement now.
- Takko might find it more difficult to re-attract those banks that sold to providing new lines again, given the frequency with which the company has had to rely heavily on their goodwill in the past.
- New incoming sr. financing parties will require a re-setting of the covenant package, which has been replaced with a simple minimum EBITDA of €25m until May only. Also, everyone will want to commit for longer than just another year. So most likely all the Sr. Financing Facilities need to be refinanced.
- If all the Sr. Financing needs to be re-struck, then what are the chances that will run significantly longer than the bonds?
-> In conclusion, we see Takko attempting to refinance all of it before May.
Positioning:
- We remain long Takko SSNs for 5% of NAV on the strong fundamental performance as well as what we see as continued strong markets. Should the refinancing prove to be challenging, we don’t see bondholders having to fear any involuntary haircuts. If any equity were on offer, we would gladly take it, but we doubt we will have the opportunity.
- Most likely we will be refied out in a few weeks.
Please reach out to discuss,
Wolfgang
E: wfelix@sarria.co.uk
T: +44 203 744 7003