Tuesday 20 March 2018 by FIIG Research Company updates

Company updates – DBS Group, Dicker Data, Eric Insurance, Frontier, Genworth USA, JC Penney, Mackay Sugar, Petrobras, Pioneer Credit, RSEA, Sprint Corp, WA Stockwell

This week, Dicker Data full year results, update on Eric’s progress with ASIC remediation, Mackay Sugar update, Petrobras announces cash tender offers, Qualcomm merger block bad news for Genworth USA, final bid for RSEA received and WA Stockwell half year results. New DirectBonds from Pioneer Credit, DBS Group Holdings, JC Penney, Sprint and Frontier

Dicker Data full year 2017 results

We have provided a research report for Dicker Data (Dicker) full year 2017 results, and reiterate our outlook and recommendation on its 3mBBSW+4.40% notes due 2020.

Key points:

  • Revenue of AUD1.304bn and EBITDA of AUD48.2m. This represents an increase of 10.2% and 5.5% for revenue and EBITDA, respectively, compared to 2016
  • The company’s credit profile improved due to an improvement in working capital. Net debt to EBITDA leverage reduced to 2.1x (2016: 3.0x) and interest coverage improved to 8.8x (2016: 7.3x)
  • Dicker expects the development application of its new facility to be approved within six months and construction to begin in late 2018. Development costs are estimated at AUD55m and will be offset by the sale of its current distribution centre. We forecast net debt to increase from AUD101.8m in 2017 to ~AUD118m in 2018 and to ~AUD128m in 2019, before beginning to fall in 2020

The complete update is available to clients on the FIIG website. Read the Dicker Data research compendium report*

The Dicker Data 3mBBSW+4.40% March 2020 bond is unrated, and available to retail and wholesale clients at YTW of 4.84%pa.

Eric Insurance – ASIC’s proposal on deferred sales period

On 7 March 2018, ASIC released a regulatory update to the general insurance industry, highlighting add on car insurance sold through car yards as a key area of focus for 2018. We note that there has been no further commentary on how Eric Insurance (Eric) is progressing with the remediation discussion with ASIC.

However, please see our results update* on Eric’s half year results, in which we reiterate our outlook and recommendation on its 10% notes due 2026. Read the Eric Insurance research compendium report*

The Eric Insurance 10% August 2026 bond is unrated and available to wholesale clients at YTW of 13.15%pa.

Mackay Sugar update

On 14 March 2018, Mackay Sugar released an operational update on its website.

Key points:

  • The pre-season harvest management preparation program is ahead of schedule
  • The initial desktop crop estimate is 4.9 to 5.0m tonnes in the Mackay region. This is lower than previous early estimates of around 5.25m tonnes. The 2017 season yielded approximately 5m tonnes
  • On Mackay operations, “overall maintenance works are tracking slightly under target although the most critical work is still on track”
  • At Mossman, the company states that favourable weather conditions support an improvement on the 2017 crop of 1.1m tonnes. The factory maintenance program is on track
  • On incentive schemes, the Board has approved the Plant Loan Scheme, Secure the Future and Lease Subsidy Scheme for 2018

Read our March update for Mackay Sugar, in which we reiterate our outlook and recommendation on its 7.25% notes due 2019. Read the Mackay Sugar research compendium report*

New DirectBonds

We have added the following bonds to the DirectBonds list available to wholesale clients:

  • Pioneer Credit AUD 3mBBSW+5.25% March 2022 secured and subordinated medium term floating rate notes. The bond is to issue on 22 March 2018. View Factsheet
  • DBS Group AUD 3mBBSW+1.58% March 2028 subordinated floating rate notes, rated A3 (S&P) – YTW of 3.72%pa. View Factsheet
  • J.C. Penney USD 8.63% March 2025 second lien notes, rated B (S&P) – YTW of 8.82%pa. View Factsheet
  • Sprint USD 7.875% September 2023 senior unsecured notes, rated ABC (S&P) – YTW of 7.63%pa. View Factsheet
  • Frontier USD 8.50% April 2026 second lien notes – 8.38%. View Factsheet

Please note JC Penney, Sprint and Frontier also have the following bonds available to wholesale clients:

Petrobras announced commencement of cash tender offers

On 15 March 2018, it was reported that Petróleo Brasileiro S.A. announced the commencement of offers by its wholly owned subsidiary Petrobras Global Finance (Petrobras). The cash tender offers are to purchase Petrobras’ notes listed below for an aggregate purchase price of up to USD4.0bn (excluding accrued and unpaid interest).

Holders of the Petrobras USD 4.375% senior notes due 20 May 2023 will receive an email relating to Petrobras’ offer to purchase these notes at a premium. The purpose of the offer is to address maturities and reduce the company’s current overall interest expense. Petrobras intends to buy back its securities in the priority detailed below.

Given the 4.375% 2023 Notes are last in priority behind more than USD6.5bn of other notes, investors tendering this line are likely to be scaled back significantly.

The following bonds, all rated BB- (S&P) are available to wholesale clients:

Qualcomm merger block not a good sign for Genworth USA merger

On 13 March 2018, Bloomberg reported Trump’s blocking of Singapore based Broadcom Ltd from pursuing its hostile takeover of Qualcomm Inc. This ‘underscores the tough stance the Trump administration is taking on foreign takeovers of US technology firms’. So far, at least half dozen technology deals have collapsed due to the Trump administration raising concerns with the Committee on Foreign Investment in the United States (CFIUS).

We note that this does not bode well for Genworth’s merger with China Oceanwide. Read our latest research for Genworth Financial Inc.

Final bid for RSEA have reportedly been received

On 13 February 2018, it was reported in the Australian Financial Review that private equity firm CHAMP Ventures is seeking a buyer for RSEA. On 18 March 2018, The Australian reported that final bids for the business were received in the prior week.

The bond may be called as part of any sale. The bond is callable on each quarterly interest payment date. RSEA must give at least 30 days (and not more than 60) notice of its intention to redeem its Notes.

The following details 2018 call dates which are all at AUD102 and the related yield at the current indicative mid-price of AUD102.2.

  • 27 April 2018 – 5.64%
  • 27 July 2018 – 7.01%
  • 27 October 2018 – 7.25%

We also note that upon the occurrence of a Change of Control, each Noteholder will have the right to require the Issuer to redeem all or any part of such Notes at a redemption price of AUD101. Change of Control means, on any date, an event where a party that held (directly or indirectly) 50 per cent or less of the issued shares of the Issuer as at the Issue Date subsequently holds (directly or indirectly) more than 50 per cent.

Read our RSEA research compendium report*

WA Stockwell half year results

We have provided a research report for WA Stockwell's half year results, and reiterate our recommendation on its 7.25% notes due 2021. 

Key points:
- During the quarter ending December 2017, WA Stockwell (Stockwell) began the settlement at Boggo Road stage two, and continued at Muse. Stockwell advises some pre-sale settlements did not complete due to offshore buyers being unable to secure finance
- Practical completion of Boggo Road was reached at the end of September 2017 and settlements commenced from mid-October. To date, 59 units have settled out of 79
- At Muse, practical completion was achieved in August 2017 and 107 units have settled out of 132

The complete update is available to clients on the FIIG website. Read the WA Stockwell research compendium report*

*Please note this content requires a FIIG wholesale login.


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