"It will do a capital rise sooner or later. Safe to buy after it...

"It will do a capital rise sooner or later.
Safe to buy after it does. The covenant waivers are a breather. But FBU will bite the bullet just like last time."

You're probably right, but I don't think there's an urgent need for it.

FBU's operating cash flows are acutely seasonal, because of the business's working capital cycle, which sees peaks in working capital at 31 December balance dates, only to reverse by June 30 balance sheets.

So the last reported balance sheet (31 Dec 2023) is bloated, and the normal seasonal capital release would have ensued since then (resulting in probably ~$300m in OCF in the current half, as denoted in the graph [*]):



The company will spend around $150m to $160m on PP&E, so that should result in a ~$150m to $150m surplus capital for the half which, when added to the $20m from the sale of the interest in the Fijian business, will mean that around $170m will be available for debt release, which will take the Net Debt position down from $1.97bn @ 31 Dec 2023, to closer to $1.80bn.

Still way too elevated, but at least directionally improved.

So I think there is a chance that they won't to raise capital while the company's share price languishes at more than two-decade lows (equity is very expensive money for FBU currently), but even if they eventually do pass the hat around, I doubt it would happen before the new chair and CEO are warmly ensconced in the boardroom and can justify an equity raising mandate.

I suspect FBU continues to try to trade its way out of the balance sheet pressure over the next 6 months, especially now that the lenders don't have their boots pressed as firmly into the company's gonads. (Still pressed, mind, but the pressure isn't increasing.)

But even then, the company still carries too many liabilities relative it its current earnings, so you are right, they will have to bite the re-capitalisation bullet at some point before the end of the calendar year.

I've seen this same movie in various forms before:

1. Management Team A makes dud acquisitions, funded by debt.
2. Company becomes financially stretched as a result.
3. Buoyant business conditions mask the problems for a few years.
4. Cyclical downturn arrives, which crunches earnings to a level insufficient to support liabilities.
5. Market valuation of company equity gets smashed.
6. Management Team A departs ("for personal reasons" and "to pursue other opportunities", Board thanks them for their "contribution")
7. Management Team B comes on board, commissions a ....uh... "strategic review".
8. Outcome of strategic review is to:
a) sell off the dud assets that were acquired by previous management team (invariably via fire sale process which returns just tens-of-cents-in-the-dollar of carrying value), and
b) raise capital to repair the balance sheet in order to fund "restructuring" provisions, "renewal and reset of the business model", and to position the business for "the next shareholder value accretive growth".
9. Fresh crop of investors buy into the vision.
10. Value of company equity recovers.
(Go back to Step 1.)

In the script For FBU, we are between Steps 6 and 7.


[*] Note: As a matter of conservatism and prudence, I deem repayment of leases (which mostly are accounted for as a Financing item) being part of Operating Cash Flow.