Tuesday 26 November 2013 by FIIG Research Company updates

PMP AGM guidance points to significant de-risking of the bonds

Key points:

  1. PMP AGM provides guidance
  2. Points to significant de-risking of the bonds by next year
  3. If guidance is delivered, we would expect to see the bonds re-price higher and yields decline to reflect the lower risk

Last week PMP Limited held its AGM. While the AGM formally presented the 2013 financial accounts, (which were already covered in our research when PMP issued the $50m Senior Unsecured Notes in October of this year) management also provided guidance for the coming year which highlighted a significant de-risking of the Notes in the year ahead as expected when we undertook the preissuance review.

The company gave EBITDA (pre significant items) guidance of $60-$64m for FY14, and more importantly for bond holders, net expected debt of $70-$75m for the end of FY14. At this level, the net debt represents our $50m issue and the Commerzbank secured facility. We note there will still be bank facilities; however the cash position will fully offset these (at the net debt level).

Should the company deliver on this guidance, it would represent a significant de-risking of the balance sheet for our Note holders as the bank facilities sitting in the senior secured position will effectively fully offset by cash in the bank. We would expect to see the Notes re-price higher to reflect this de-risking offering an opportunity for investors.

The relative value graph below shows PMP to be an outlier on a trading margin basis when compared to our other new issues. On delivery of this guidance we would expect to see a significant amount of this ‘outlier status’ trade away.

relative_value_chart

Figure 1

Management also noted that they remained focussed on continuing to bring down the cost base. The strategy is in line with their transformation plan (now in its third and final stage) which will be completed by the end of the current financial year. Management also noted that 1Q14 retail conditions remain subdued however they are seeing some early indications of an improvement in consumer confidence (through increased pagination) albeit within a low-priced market.

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