AMA update. Undervalued 15-22%, page-32

Hi,

New poster here, appreciate the discussion.

It seems there are some misunderstandings regarding AMA Groups' numbers. Their debt faciliy is 375m, but only 290m was drawn at the end of the latest quarter, and the Company had 49m in cash for net debt of 241m (this is not taking their recent acquisitions into account, so these are ballpark numbers).

They obviously need to get their execution in order, but this corona crisis is very much a temporary issue and a huge liquidity squeeze for a lot of Companies. With lots of cash, and more to draw on the facilities if needed (I don't think it is needed), they seem to be in a decent spot to handle any liquidity issues.

Considering the above, if/when the Company gets to the other side of this corona-virus crisis - and get the expected concessions from insurers - these Guys probably should be able to do some 100m ebitda down the line. That would be versus an enterprise value of around 350m or 3,5xev/ebitda. Considering the leverage here, AMA Group trades somewhat like an equity stub. So if it ever gets rated at say 10xebitda, which Blackstone wanted to pay (this is simplified since that was for the panel busines and the rest warrants a lower multiple), there's upside of some 500-600 pct. I think this is nuts and have bet accordingly.

Considering their results will me affected to some degree by corona-virus, they probably won't hit their guidance - or anything even close (not sure). Which would imply that they might break their covenants. But, as alluded to on the recent conference call, their covenant test isn't based on trailing twelve months EBITDA but runrate. Thus, they'll probably be allowed to include the expected synergies of 17m from the SMART acquisition. And they might be able to exclude other one-off costs - possibly even this whole corona-virus thing.

Even if I'm mistaken, and they breach their covenants, I'd be very surprised if they didn't get a waiver. I talk with private equity partners on a daily basis (I'm based in Europe), and a lot of their portfolio Companies will breach their covenants due to the lockdown. But at the same time, they don't expect any issues with the banks, since the banks understand it's a temporary issue, and no way the Banks want to be handed the keys to a ton of companies at the same time while having to impair loans. As one of them said: Nobody cares about covenants tests. Those are pushed 6-12 months out.

At least in Europe and the US, banks have - perhaps rightly - been vilified since the great financial crisis. This is truly the banks' time to shine by providing liquidity in a time of great temporary stress, and thus I'd be surprised if we saw many bankruptcies of viable companies due to corona-virus issues. How are banks viewed in Australia? Thus the same seem plausible Down Under?

Appreciate the thoughts.

Best,