Tuesday 15 November 2016 by FIIG Research Company updates

Company updates – Adani, Capitol Health, Cash Converters, CML, Emeco and IPG

Adani’s outlook revised by S&P, Capitol Health release a trading update, Cash Converters released their 1Q17 update, Emeco to hold a creditors’ scheme meeting and more

Adani Abbot Point Terminal

Standard & Poor’s (S&P) have revised the outlook on Adani Abbot Point Terminal (AAPT) to negative from stable. A note from S&P is as follows:

“S&P has revised the outlook to negative from stable on Adani Abbot Point Terminal's BBB- rated senior bonds, following its agreement with Queensland Coal, a subsidiary of Rio Tinto, to terminate their ship-or-pay contract. The revision means there is a one-in-three chance of a downgrade within two years.

AAPT has two outstanding domestic bonds – its debut A$500m (US$378m) 5.75% November 1 2018s, issued in the institutional market in October 2013 and A$100m 6.1% six-year senior secured notes sold to private investors seven months later through FIIG Securities. 

S&P’s move follows Moody’s two-notch downgrade of AAPT in March 2016 to Ba2, with a negative outlook, from Baa3. Moody’s downgrade triggered 100bp step-ups for the 2018s and 2020s, which increased the respective coupons to 6.75% and 7.1%. 

If S&P matches Moody’s two-notch downgrade, the coupon step-up would increase to 125bp. It would remain at 100bp in the event of a one-notch or no downgrade, but would rise to 175bp for a three-notch S&P downgrade and to 200bp for a larger downgrade. 

The yield on the November 2018s surged to almost 11% from 6.37% after Moody’s downgrade having been quoted as low as 4.3% in April 2015. The yield is currently quoted around 7.4% with recent support provided by AAPT’s near A$63m buyback from August's CBA-arranged tender offer. 

S&P noted that AAPT had increased its debt-reduction plans to prepay A$330m of senior debt over the next six to 12 months from A$240m previously. The ratings agency expects the balance of the A$330m to be repaid during 2017.”

Capitol Health

On 15 November 2016, Capitol Health released a trading update that highlighted revenues in the first four months were 4% below expectations – although up 0.6% on the prior year.  Management now forecasts that EBITDA in 1H17 will be $7.7 to $8.2m.

Positively for bondholders, Capital Health is focussing on reducing debt and controlling overheads.  In addition, management reported some improved revenue performance since the beginning of October.

Capital Health reported a partial recovery in Medicare growth rates during 1Q17 but this was insufficient to offset revenue declines elsewhere.  As such, management forecasts 1H17 revenue to be in the range $79m to $80m which is up 0.6% year on year but 4% lower than expectations.

In terms of management guidance, revenue for FY17 will be largely driven by industry changes and uncertainty around the bulk billing incentive reduction that is planned by the Federal government to start in January 2017.  Capitol Health has tried to budget for these but the timing and depth of the reductions remain uncertain.

In terms of strengthening the balance sheet, property sales that have been previously mentioned are progressing well with one property already sold and another two under negotiation.  Management is also working through various overhead cost reductions – management headcount, falls in head office leasing costs and elimination of major advertising/sponsorship spending.  The company expects these initiatives to reduce costs by approximately $2m per annum and should improve margins gradually during 2H17.

Furthermore, Capitol Health is reducing capital expenditure below $5m in FY17, which was the previous guidance.

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

Cash Converters

Cash Converters (CCV) have released their first quarter 2017 update, with net profit for the period at $6.3m. The company confirmed guidance of full year NPAT of $20m to $23m.

The exit from Small amount credit contracts (SACCs) in the first quarter saw volumes and profit fall accordingly. The Australian business produced an EBITDA of $12.6m, down 30.4% on the corresponding quarter in 2016.

Medium amount credit contracts (MACCs) were launched in October 2016 to offset the SACCs, however CCV gave no detail on volumes.

More information can be found here.External link - opens in a new window


CML comparison company Scottish Pacific (ScotPac) announced a disappointing update on trading conditions, with lower than expected levels of borrowing from its larger clients. We are of the opinion that there won’t be any read through into CML’s business, as it was ScotPac’s larger customers that showed weakness. Supporting that view, we note that CML’s shares were steady at 24c, with ScotPac’s margins in line with expectations and bad debts lower than expected. 

We currently have both fixed and floating rate CML bonds indicatively available at a yield to worst*:

  • 2021 fixed rate bond at  6.17%* (wholesale only)
  • 2020 floating rate bond at 6.34%* (wholesale and retail)

*In this instance, the yield to worst represents the yield to maturity.
Note: Prices accurate as of 15 November 2016 but subject to change.


Emeco has announced it will hold a creditors’ scheme meeting on 13 December 2016 to vote on the proposed recapitalisation and three way merger with Orionstone and Andy’s Earthmovers.

More information can be found here.External link - opens in a new window

Integrated Packaging Group (IPG)

IPG recorded mixed results for FY16, however performance in the first quarter of 2017 has been strong meeting FY16 EBITDA run rate forecasts.

More information can be found here.External link - opens in a new window
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