United Group - Keeping ahead.
All,
Please find our unchanged analysis here.
United Group’s statement yesterday has set the clock ticking on the partial sale of its towers business. Proceeds would be used to part-fund the €1.1bn of 2024/25 maturities. These bonds currently yield 9% - 10%. In our recent analysis of United Group, we were comfortable that the company could achieve the necessary price rises to cover higher coupons as its debt fell due this announcement solidifies our view that the additional interest bill will be manageable. Tower assets are in high demand right now. An infrastructure investor will want to take a majority stake (at least) in the tower business. Vantage Towers bought the Wind Hellas towers last year, so could be an ideal partner.
Towers business sale is closer than the market thought:
- We value the division at €675m and estimate the related EBITDA at €56m per year.
- United has appointed Goldman as advisor in a sales process for part of the business.
- Prior to this the company was exploring options. The decision to sell is no shock though.
- There are plenty of infrastructure funds interested in towers business most will want at least a majority stake.
What is the impact on leverage?
- The impact is about 0.5x of leverage being able to fund the 2024 maturities without going to the market buys another 6-months of time to await market normalisation.
- Leverage through the SSNs drops to 4.5x from 4.9x in a full sale.
- Leverage through the SUNs falls to 5.1x from 5.5x in a full sale.
What are the maturities in that period?
- A full sale would cover the 2024 maturities.
- There is a €525m maturity in July 24 and a €550m maturity in May 25.
- The €230m RCF (€83m drawn) also falls due in November 24.
Positioning
We are long the 4.875% July/24 SSNs at 93.625c/€ for a YTM of 9.0% for 5% NAV. The rise in interest rates is manageable given the maturity profile of the company and the low elasticity of consumer demand.
- To avoid the volatility in a longer-dated position, we are only buying the short-dated bonds. As and when we feel more comfortable with the market, we will likely migrate down the curve.
- The sale of the Towers business was on our minds but in the calculations, for our investment rationale, we are further convinced and will look to rotate into longer-dated paper once the current market turmoil lessens.
I look forward to discussing this with you all.
Aengus
T: +44 203 744 7055
www.sarria.co.uk