United Group – Positioning For New Opportunities
All,
Please find our unchanged analysis here.
Our position in the PIYC 9 2025 has worked out well, and in line with our note on 1st September, we are now exiting at 96.75. We expect the bonds to be refinanced in 2024, and we are happy to deploy our capital in more attractive positions.
Investment Rationale:
- We are disposing of our 3% NAV position in the PIYC 9% 2025. The PIYCs mid-price these days is 97c/€. Capturing the last three points of capital return will take time, we do not expect any refinance before Q424. Our annualised return on this 6-month holding was close to 38%. The downside of renewed stress for the market or UG is 20 points, whereas the upside is three more points of capital gain.
- If we assumed a distressed recovery at 60% of our DCF valuation, The PIYC value would be closer to 75%. The bonds would likely trade lower in that scenario.
- We see a par refinance in November 2024 as increasingly likely. Rather than a tender or amend and extend. Management tone suggests they will pay cash coupons in Nov-23 and Apr-24, but it is not guaranteed.
- The geographic footprint of UG does give some EM flavour to the name, even if Serbia is the only major network outside the EU. UG has an interest rate challenge, but an additional 8% rise in revenue would cover an increase in coupons to an average of 10%, and UG has 5- years to achieve this.
I look forward to discussing this with you all.
Aengus
T: +44 203 744 7055