Research, Charts & Company Announcements
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Indebtedness has to be managed now that the 2013-17 investment project is implemented
12 Oct 15
Several important transactions have and are taking place over the year and, as we have already written (see our Latest dated 29/07/2015), Wendel’s consolidated accounts will be impacted in 2015 and over the next year by the changes in the scope of consolidation. The three major transactions are the sale of 10.9% of Bureau Veritas’s share capital and the acquisition of Constantia Flexibles both in March 2015, followed by the expected acquisition of the US group AlliedBarton by the end of this year. In H1 15, the overall contribution of the group’s companies to net income from business sectors was €333m (up 15.4% from H1 14), the major contributors being Bureau Veritas (62% of the total contribution with €207m) followed by Saint-Gobain (22% of the total with €72m) and Stahl (€41m, Stahl becoming a much larger company with the acquisition of Clariant's Leather Services). At this level of results, we also note that: • the contribution of Materis was halved, due to the sale of the company’s divisions except for Cromology (formerly Materis Paints), which remains the only activity of Materis kept by Wendel; • IHS (consolidated as an associate with 26%) reduced its losses (€5.9m compared with a loss of €9.3m in H1 14); • the intermediate holding Oranje-Nassau Développement appeared in loss, the solid performance of Parcours being insufficient to offset the losses of CSP Technologies (consolidated for the first time) impacted by negative foreign exchange rate fluctuations of the euro vs dollar and the deterioration of the profitability of Mecatherm (fully consolidated) due to a deep industrial reorganisation because of the disruptions caused by the management of too many projects at the same time; • Constantia Flexibles’ contribution was positive (fully consolidated since 01/04/2015), but weaker than we expected. After deducting operating and financial expenses, which increased because of the strong investment activity of the first half, net income from business sectors amounted to €201m (+24%) but only to €62m (-3%) for Wendel’s share. Non-recurring gains and losses netted almost to zero, the revaluation of Saint-Gobain shares being neutralised by the anticipated loss in Wendel’s accounts of the sale of Saint-Gobain’s subsidiary Verallia, the currency translation loss recognised by IHS following the devaluation of the Nigerian naira related to dollar-denominated debt and other asset impairments or other non-recurrent loss items. As already known, the capital gain of €728m on the divestment of 48m Bureau Veritas’ shares in March 2015 was not recognised in Wendel’s income statement, in accordance with accounting standards relating to a majority shareholding (IFRS 10). As a consequence, Wendel’s net income decreased to €32.2m for the group share (compared with €70.3m in H1 14).
Properly balanced asset base
29 Jul 15
Having divested a number of assets for several years, first to contribute to its financial deleveraging and secondly to reimburse the debt related to the investment in Saint-Gobain, Wendel has entered into a new investment cycle. A four-year strategic programme of development was announced in 2013, with the objective to invest €2bn over 2013-17. 2013 and 2014 went down as years of portfolio changes and, at the same time, as the start and implementation of the investment strategy. Wendel’s self-imposed conditions were: 1) to divide the amount of the investments between Europe, North America and the emerging countries; 2) to continue to deserve the “Investment Grade” status given by Standard and Poor’s in July 2014; and 3) to pay an increasing dividend to its shareholders. The geographic diversification strategy was launched with the first investments in IHS (a leader in telecom tower infrastructure for mobile phone operators in Africa) in 2014, followed by a small stake purchased in the Moroccan group Saham. The successive calls for funds which intervened afterwards made us worry of a distortion in favour of the African continent, with the risks which would have certainly followed (see our Latests dated 22/04/2014 and 10/11/2014). We know that the maximal amount allocated to IHS is not expected to exceed, at least by 2017, the $779m already invested. And no further investment should be made in Saham (only €100m invested for a 13.3% stake in the company). The investments in Africa seem now to be realised via the subsidiaries, as for example the recent acquisition of the South African packaging company Afripack by Constantia Flexibles in July 2015. The acquisition of CSP Technologies in the US and Constantia Flexibles in Austria (see our Latest dated 19/01/2015) and the announced purchase of AlliedBarton Security Services in the US (see our Latest dated 01/07/2015) have rebalanced the allocation of the funds. The completion of the acquisition of AlliedBarton will allow Wendel to have achieved its four-year strategic programme of development, two years in advance. During 2014 and the first months 2015, Wendel continued also to renew its borrowing facilities so as to reduce its financing costs and extend the maturity of its debt with the launch of three bond placements in 2014 (totalling €900m, with maturities in January 2021 and October 2024) and a bond issue in January 2015 (€500m, maturing in February 2027, bearing interest at 2.50%). In addition, Wendel entered into an agreement with seven banks for a €650m syndicated line of credit maturing in November 2019 (and replacing the undrawn €600m syndicated credit line maturing in May 2018). Finally, Wendel simplified its debt structure by repaying all of the debt related to Saint-Gobain in 2014 and unwinding the puts written on Saint-Gobain in March 2015 (at an average price of €40.19, representing a total payment for Wendel of €136m).
A second acquisition in the US
01 Jul 15
The wishes expressed by Wendel’s management have become reality: the company announced on 30/06/2015 that it has agreed to acquire AlliedBarton Security Services, a large security officers services company in the US, which is number 2 in its market behind Securitas. AlliedBarton provides physical guarding and related services to more than 3,300 customers in a large expanding market in the areas of commercial real estate, higher education, healthcare, financial services, government services, aerospace and defence, petrochemicals, retail, … Based in Pennsylvania, AlliedBarton generated annual revenues of $2.18bn and an adjusted EBITDA of $148m with a free cash flow conversion rate of about 95%. Wendel acquired AlliedBarton from funds managed by Blackstone for c.$1.7bn (11.6x free cashflow). Wendel will be investing about $670m in equity for a 96% ownership, alongside AlliedBarton’s management team. The transaction is expected to close by the end of Q3 15.
N+1 Singer - Morning Song 30-11-2016
30 Nov 16
Sanderson has delivered full year results in line with expectations and the 19 October trading update after a strong finish to the year compensated for a slower start. A healthy level of pre-contracted recurring revenue (50%), incremental sales to existing customers and new customer wins at higher average order values helped deliver solid revenue growth in both the Digital Retail (+9%) and Enterprise (+12%) divisions. A decent order book and good sales momentum suggest that the company is on track to deliver on unchanged profit expectations for the current year. We continue to view the valuation (FY17 EV/EBITDA 8.6x) as undemanding given an attractive combination of accelerating growth potential, strong cash generation and growing dividends.
VPC Speciality Lending Investments PLC – sticking to your knitting pays dividends
05 Dec 16
A 25% discount on a dividend paying vehicle suggests either (a) lack of belief in the NAV, (b) lack of belief in the dividend, (c) concerns over future delivery, (d) a shareholder’s base not normally exposure to “closed end structures” or (e) some combination of (a) to (d). We had a first meeting with the management team and London representative of VPC Speciality Lending to try to better understand why the share price had fallen quite so much.
N+1 Singer - Grainger - Final results in line, further progress on PRS investment pipeline
01 Dec 16
Grainger has reported FY16 final results this morning with key NNNAV and recurring PBT metrics in line with our forecasts. Sales performance and rental income growth was strong in H2, as previewed in the positive FY trading update driving our 19% PBT upgrade in early October (11/10). The PRS investment pipeline continues to grow now standing at £389m secured and £347m in legals as Grainger pursues an £850m investment target by 2020. A 3.05p final dividend is in line with the revised policy to distribute 50% net rental income. The shares continue to trade on a significant, and unwarranted, 20%+ discount to NNNAV. We reiterate our BUY recommendation.
05 Dec 16
As we mentioned in our 18 November 2016 note, a continuation vote was expected to be announced before the end of 2016. The announcement last Friday included details of the continuation vote, and in particular, a recommendation by the Directors to replace the June 2015 strategy of selling non-core assets and developing the core projects, with a new strategy of an orderly sale of the Company’s assets, with a target of selling all assets by 31 December 2019 and a distribution policy for returning monies to shareholders following disposals. Alongside these recommendations, there are proposed changes to the remuneration for the investment manager.
Better Capital – A tale of two funds
05 Dec 16
Our gut feel on the results is that BCAP’s Gardner disposal feels viable (albeit as a late Q1 transaction). Post Gardner, the exit profile for BCAP’s portfolio is slanted towards the years 2018/19 and not earlier; we view the market’s current pricing as cautious (14% disc to our estimate of FV). In contrast, BC12’s more consumer facing portfolio remains a work in progress and may well offer further disappointment before turning a corner; the market valuation (51% discount to NAV) is cautious but probably fair given the difficulties.