Tuesday 29 August 2017 by FIIG Research Company updates

Company updates – Ausdrill, CML Group, Genworth, G8 Education, McPherson’s, NEXTDC, NRW, Pepper, Talen Energy, Qantas, Vale and Windstream

This week, Genworth acquisition update, NEXTDC gets approval from APDC and closing new senior secured syndicated, NRW to contract in SA, Pepper shakes AUD6bn, 1H17 results for G8 Education, FY17 results for Ausdrill, CML Group, McPherson’s, Talen and Qantas and Vale 2026 and Windstream 2020 New DirectBond Factsheets

Ausdrill – FY17 results

On 30 June 2017, Ausdrill released its annual report for 2017.

Key points:

  • Revenue was up by 4.5% to AUD776.3m compared to per corresponding period (pcp). The gold sector continues to contribute around 80% of the group’s mining services revenue
  • EBITDA increased by 9.4% pcp to AUD136.8m. Proforma EBITDA (including Ausdrill’s 50% share in its African Underground Mining Services joint venture) also increased by 8.6% pcp to AUD154.5m due to 17% growth in the joint venture’s revenue and earnings
  • Capital expenditure (capex) for FY17 increased significantly by more than 10 times to AUD147.4m from AUD12.4m in FY16. The higher capex was funded by operating cash flow and cash reserves. Consequently, the higher capex resulted in a negative net cash flow of AUD13.5m compared to AUD104.1m in FY16
  • At 30 June 2017, Ausdrill’s total debt decreased by 2.5% to AUD221.9m, and together with cash of AUD166.7m, resulted in gearing (net debt/ net debt plus equity) dropping marginally by 0.3pt to 26%
  • In addition to cash, the company has access to AUD124.8m in undrawn facilities. Ausdrill’s next debt maturity will be its USD300m of unsecured notes due in FY20

For more information and outlook for FY18, see this link here.External link - opens in a new window 

CML Group Ltd – FY17 results

On 23 August 2017, CML released its full year 2017 results. CML posted a strong result with FY17 EBITDA of AUD13.3m which was ahead of revised guidance as both scale and volume improved. Management are focused on transforming funding by moving to majority bank funded debt in the next 12 to 24 months. CML’s bonds are currently trading higher than the 104% call price at which they are likely to be redeemed at the next call date in May 2018, we believe they offer fair value at current price

For more information, see this link here.External link - opens in a new window 

G8 Education – 1H17 results

On 21 August 2017, G8 released its half yearly report and accounts. It has a much improved credit profile and liquidity position given a significant equity raising and a new AUD200m revolving facility, during 1H17.

Key points:

  • Revenue increased 3% from prior corresponding period (pcp) to AUD368.7m
  • G8 reiterated guidance for FY17 of underlying EBIT of mid AUD170m
  • During 1H17, the group raised AUD195m via an AUD100m domestic institutional placement and an AUD95m private placement, decreasing the group’s net leverage to 1.2x at 30 June 2017
  • G8 has reduced its target net leverage level to 1.5-1.7x from 2.0x
  • On 18 August 2017, G8 executed an AUD200m three year club bank debt facility with CBA, Westpac and Sumitomo Mitsui Banking Corporation, replacing an AUD50m facility.

For more information, see this link here.External link - opens in a new window 

Genworth acquisition by China Oceanwide update

In this note we provide an update on the proposed acquisition of Genworth Financial, Inc. (‘Genworth’) by China Oceanwide Holding Group (‘Oceanwide’) which was announced in October 2016 and approved by shareholders in March 2017.

The transaction is facing uncertainty due to rising geopolitical tension between US and China. Approval from regulators has been delayed and the deadline for the merger agreement has been pushed back to November 2017 from August 2017. This uncertainty is reflected in the current share price of USD3.41 and is at a 37% discount to the deal price of USD5.43 per share.

If successfully closed, we see upside for the 2021 bonds, as the new Genworth would have been recapitalised whilst preserving the underlying strengths of the residual businesses. However, should the deal not proceed to final close, Genworth will face a challenging predicament that will compromise its business profile. Given this, at the current mid-price of USD96 and a YTW of 8.81%, we think that the bonds are expensive and there is likely to be a better entry price in future.

For more information, see this link here.External link - opens in a new window 

McPherson’s solid cash generation and debt reduction

McPherson’s has reset to a lower AUD environment, and improved profitability by refocusing towards higher margin businesses. Free cashflow generation has reduced net debt by 27% year on year. While top line results are weaker than expectations, credit metrics are broadly in line given the debt reduction.

For more information, see this link here.External link - opens in a new window 

NextDC gets approval from APDC board and makes financing changes

The APDC board has approved the takeover offer by NEXTDC. An independent report by BDO Australia was also conducted concluding: “We have considered the terms of the NEXTDC Offer, as outlined in the body of this report, and have concluded that the NEXTDC Offer is fair and reasonable to APDC security holders.”

NEXTDC also announced the close of its new, three year AUD300m senior secured syndicated facility, replacing its existing AUD100m facility. As detailed below, NEXTDC will have significant liquidity available including circa AUD300m of cash and AUD300m under the new facility, which remains undrawn. This is more than enough to cover the cost of the APDC takeover (circa AUD70m) plus complete previously highlighted capex.

Source: FIIG Securities, Company reports. * According to APDC bidders’ statement NEXTDC has cash of more than AUD300m as at 14 August 2017

NRW set for AUD111m contract in South Australia

NRW Holdings is set to receive an AUD111m contract for work on OZ Minerals’ Carrapateena gold-copper project in South Australia, which was given the green light for development on 25 August 2017.

In a statement, NRW said that it was finalising negotiations for an initial package of work into a lump sum contract worth the said amount. The scope of work under the package consists of the western access road, a tailings storage facility, and construction of a quarry and airstrip.

Pepper Group shakes AUD6bn

Pepper Group’s loans under management lifted 15% to AUD5.98bn which is around 2.3 times system and one of the fastest growth rates for any mortgage funder. The non bank lender now outguns all bar one mutual bank for scale in loan funding and may soon surpass Citi for scale in this segment.

In its core markets, loan originations for Pepper increased by 19 % to AUD1.8bn. This is equal to 72% of originations over the financier’s full year to December 2016. 

Talen Energy – 2Q17 results

Talen released its second quarter 2017 results. 

Key points:

  • 2Q17 adjusted EBITDA improved to USD140m, a 77% increase from 1Q17 and an 11% increase when compared to per corresponding period (pcp)
  • The company has a strong liquidity position, with USD1bn available at 30 June 2017
  • Talen achieved USD150m in sale of non core assets to date
  • Talen has recently extended the maturity of its debt portfolio, by converting USD98m of its 2021 notes to its 2024 notes
  • While active management of Talen Energy’s debt maturities is credit positive, the recurring use of guaranteed debt to replace unsecured obligations to entice new lenders has weakened recovery prospects for unsecured debtholders, which are now increasingly subordinated within the capital structure
  • S&P’s negative outlook on Talen Energy’s ratings reflects the possibility that leverage could increase further and lead to a more unwieldy capital structure

For more information and outlook for FY18, see this link here.External link - opens in a new window 

Qantas – FY17 results

On 25 August 2017, Qantas released its full year 2017 financial results.

Key points:

  • Qantas’ underlying profit before tax of AUD1.4bn is the second highest in the airline’s operating history and slightly above Qantas’ guidance range shared in May 2017
  • The airline’s group domestic business i.e. Qantas and Jetstar combined achieved a record underlying EBIT of AUD865m, an increase of 5.5% per corresponding period (pcp). The domestic business was also strong against its competitors, and achieved 90% of total domestic EBIT share as compared to a capacity share of 61%
  • The Qantas Loyalty division reported its record underlying EBIT of AUD369m (up by 6.6% pcp), with double digit earnings growth in 2H17, mainly due to strength of the core Frequent Flyer program
  • The international business’ underlying EBIT of AUD327m was the second highest result in the airline’s operating history
  • The Freight division experienced a 27% decline in underlying EBIT, primarily due to the higher levels of wide body capacity in the international market

For more information, see this link here.External link - opens in a new window 

Vale Overseas Limited August 2026 New DirectBond and Factsheet

We have provided a 2026 Factsheet for Vale Overseas Limited.

The factsheet is available here.External link - opens in a new window

Windstream Services LLC October 2020 New DirectBond and Factsheet

We have provided a 2020 Factsheet for Windstream Services LLC. 

The factsheet is available here.External link - opens in a new window 

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