Tuesday 07 August 2018 by FIIG Research Company updates

Company updates - Axsesstoday, Frontier, Mackay Sugar, Windstream, Zenith, ZipMoney, quarterly results and updated factsheets

Axsesstoday FY18 highlights and FY19 earnings guidance, Frontier 2Q 2018 results and downgrade, Mackay Sugar court decision not considered material, Windstream lowered to select default post finalisation of exchange offer, new issue Zenith Energy announces two contract extensions, ZipMoney FY18 results, quarterly results, updated factsheets

Axsesstoday FY18 trading highlights and FY19 earnings guidance

Axsesstoday has released FY18 trading highlights with full results due within the next few weeks:

  • FY18 unaudited NPAT of AUD7.0m, up +94% on FY17 and in line with the Company’s upgraded guidance. Net loan receivables of AUD336m at 30 June 2018, up +100% from 30 June 2017
  • FY19 Underlying NPAT expected to be AUD12.5-13.0m, an increase of 80% over FY18
  • Funding capacity and capital strength enhanced through AUD200m Macquarie securitisation warehouse facility (May 2018), AUD55m Simple Corporate Bond issuance (July 2018) and oversubscribed AUD20m equity raising
  • No update on asset quality, full accounts will be released August 20, although performance at 1H18 was sound, lacks seasoning, but no reason to think asset quality will deteriorate significantly in the near term:
  • 30DPD at 1.6%
  • Credit losses at 1.3%

 Axsesstoday has previously indicated that the proceeds of the Simple Corporate Bond, AUD55m 3mBBSW+4.90%, issued in July will be used to support loan book growth and repayment of existing borrowings. It is likely the AUD50m 3mBBSW+6.50% will be called early.  The next call date is 9 Oct 2018 at 103%. The notes can be called at each interest payment date on 9 January, 9 April, 9 July and 9 October. The call price reverts to 101.5% in Oct 2019.  It is also likely that the AUD30m 7.50% will be called early which is pretty similar call terms as per the AUD50m.      

To link the report click here.

Frontier quarter two results

For 2Q 2018, Frontier reported better than expected free cash flow and broadband net losses.

Management commented on the earnings call: "We remain committed to reducing debt over time and improve our leverage profile. We will continue to evaluate balance sheet alternatives over time. Nonetheless, our primary focus will remain on executing on our initiatives to improve the business and to achieve the AUD500m EBITDA enhancement that Dan discussed."

The results point to a stabilisation of Frontier’s earnings and balance sheet. The conversion of its preference shares into common equity will result in an additional USD50m of cash being retained per quarter. With free cash flow, after capex, that could be in the region of USD200m to USD300m in the coming quarters, the company should have the ability to pay down some of its debt. As is common in the telecom sector though, continued investment in the network means that, absent a pick up in earnings, Frontier might not be able to sustain this level of quarterly cash flow long term.

Frontier Downgraded To 'CCC+' Due To Continued Underperformance, Outlook Negative

S&P has downgraded Frontier Communications, making the following comments:

“Frontier’s operating and financial results were somewhat below our expectations in the second quarter of 2018 and we believe the company will be challenged to stabilize its EBITDA and reduce leverage over the longer-term without meaningful top-line improvement.

We are lowering the issuer credit rating and senior unsecured debt rating to 'CCC+' from 'B-'. The negative outlook reflects our belief that Frontier will be unable to address its longer-dated maturities when they come due absent favorable business, economic, and financial conditions because of its lack of debt capacity, insufficient cash flow, and high leverage.”

The following Frontier bonds are available to wholesale investors:

  • Frontier USD 8.50% April 2026 bond available at YTW- 8.77%pa rated B+. View Factsheet.

Mackay Sugar court decision not considered material

On 1 August 2018, the Supreme Court of Queensland found in favour of cane growers who opposed MSL’s AUD2 per tonne grower contribution. Such growers only represent a small proportion of cane supply and the findings are not considered material.

In 1H18, grower contributions of AUD9.4m were retained. It has been reported that “at least” AUD300k may need to be repaid plus legal fees.

Regarding the recapitalisation plan, the company has stated that “we are continuing to have detailed reviews from potential investors and this will continue through August/September”.

We maintain our speculative recommendation on Mackay Sugar 7.75% notes due 2019. Our credit outlook remains negative.

For further information read here.

Windstream lowered to select default post finalisation of exchange offer

On 4 August 2018, S&P announced US based telecommunications provider, Windstream Holdings Inc., exchanged about USD1bn in face value of subsidiary Windstream Services LLC’s 7.75% senior notes due in 2022, 7.5% senior notes due in 2023, and 8.75% senior notes due in 2024 at a discount to par.

As a result, S&P are lowering their issuer credit rating on Windstream to SD, selective default from CC.

They are also lowering the issue-level rating on certain of Windstream's senior unsecured notes that were exchanged at a discount to D from C. At the same time, they are placing a B+ issue level rating on Windstream Services' and Windstream Holding of the Midwest's senior secured debt on CreditWatch with negative implications. The CreditWatch listing reflects potential for at least a one-notch downgrade of the senior secured debt if the issuer rating on Windstream is raised to the  CCC category.

S&P plan to raise our rating on Windstream over the next few business  days, most likely to the CCC category. The company has significant debt maturities of AUD1bn in 2020 and AUD1.2bn in 2021.

FIIG has issued a recommendation to holders that they remove exposure to this name and sell into the market, not accepting the exchange for longer dated securities.

The following WINDSTREAM bonds are available to wholesale investors:

  • WINDSTREAM USD 7.75% Oct 2020 bond available at YTW- 12.61% rated CCC. View Factsheet.
  • WINDSTREAM USD 8.63% Oct 2025 bond available at YTW- 9.48% rated B+. View Factsheet.

Zenith announces contract extensions

FIIG’s new issue, Zenith Energy announced 2 contract extensions this week:

  • On 31 July 2018, Zenith released an ASX Announcement that they had been awarded a one year extension of its Manage, Operate and Maintain contract with Incitec Pivot Limited at its Phosphate Hill Power Station facilities in the Mount Isa region of Northern Queensland. The extended MOM contract with IPL is forecast to continue to generate consistent revenue to Zenith’s operations over the next 12 months.
  • On 1 August 2018, an ASX announcement stated Zenith Energy had signed a Contract for Provision of Power Generation Services with Chevron Australia. The Contract is for the supply of electricity and build, own, operate, maintain and upgrade equipment for a nameplate rated 20MW power station at the WA Oil Operations on Barrow Island. Zenith Energy’s total BOO capacity will increase from circa 185MW to more than 189MW following the completion of upgrade of the power station. The services under the Contract will commence in the first quarter of FY2019 for a 10 year term.

ZipMoney FY18 Results

ZipMoney’s FY18 results have been released showing strong momentum and underlying profitability (EBITDA, NPAT) is expected to improve as scale absorbs significant investment spend. The asset quality is broadly stable.  Key points are as follows:

  • Underlying momentum strong:
    • Operating revenues: AUD40.4 million, up 138% on prior corresponding period (pcp)
    • Transaction volumes: AUD524.9m in FY18, up 135% (pcp)
    • Loan book (receivables): AUD316.7m, up 108% (pcp)
    • Unique customer numbers: 738,1k, up 145% (pcp)
    • Retail partners: 10.6k, up 141% (pcp)
  • NPAT of –AUD22.5m, from –AUD20.8m. However, underlying operating performance improving significantly as increased scale and synergies flow:
    • EBITDA: –AUD5.9m, from –AUD8.6m
    • Cash flow breakeven (operating cash flow after bad debts) turned to positive in 4Q18 at AUD0.68m.
  • Asset quality broadly stable, but underlying mixed as seasoning flows through numbers (lower arrears but higher bad debts). This should smooth out as lending book seasons and ZipMoney adjusts its underwriting and arrears management.   
    • Credit losses (bad debt expense): 5.9% (largely unchanged from pcp)
    • Arrears (60 days past due): 1.9%, from 2.9% (pcp)
  • Bad debts (180 days past due): 2.6%, from 1.3% (pcp)

The full report is to follow.

Quarterly Results

Here is a list of releases to quarterly results:

  • View Bristow Quarterly Results August 2018 here.
  • Genworth Quarterly Results August 2018 here.

Updated Factsheets

Here is a list of all recently updated Factsheets available to investors:

  • CML Group BBSW +5.40% May 2021 senior secured notes. View Factsheet.

Please note yields are accurate as of 7 August 2018, subject to change. S&P ratings are shown.