Tuesday 21 November 2017 by FIIG Research ripples_on_water Company updates

PMP issues earning downgrade but credit profile remains solid

On Monday 21 November 2017, PMP issued an earnings downgrade for FY18 and FY19

The company stated that as the integration of PMP and IPMG progressed, it become clear that the previous guidance will not be met. The downgrade predominantly reflects a higher cost base than the synergy plan envisaged as PMP has had to accommodate larger than expected volumes of short format work and lower than assumed sell prices.

PMP’s revised guidance is summarised below.

As such, we have adjusted our forecasts accordingly. The table below details the old and new forecast expectations. We have reduced our FY18 EBITDA figure to $47.7m from $68.1m and FY19 from $81.8m to $65.0m. While the profit downgrade is not ideal we still expect the company to maintain a solid credit profile with net debt to EBITDA leverage 0.7x and 0.2x in FY18 and FY19, respectively and strong EBITDA interest serviceability of 8.4x and 12.2x in FY18 in FY19, respectively.

Source: FIIG Securities, Company reports

Relative value

Source: FIIG Securities, Bloomberg. Pricing as at 21 November 2017. Indicative only 

Even after the profit downgrade, we believe PMP has a solid credit profile. As stated in our previous report (dated 5 September 2017), we think that the bond is likely to continue to trade around its next call price of $101.0 and therefore offers limited further upside potential. As such, investors may want to consider switching to higher yielding peers as illustrated above. For example, the Cash Converters (CCV) September 2018 bond offers a significant yield pickup. We believe that CCV is currently in a sound position to repay/refinance the bond; at 30 June 2017, CCV held cash on balance sheet of $80.6m against debt of $107.0M with underlying net EBITDA leverage of below 1x.

Source: FIIG Securities, Bloomberg. Pricing as at 21 November 2017. Indicative only