Interesting investment proposition, IMHO, over the next 2-3 years given the depressed SP.
Suspect if the leverage issues can be sorted (and assuming 8x EV/EBITDA is an appropriate transaction multiple as used in the prospectus) we could see a >5x return on an investment today. Hopefully no one tried on a takeover at these prices at a low-ball offer to win support from s/holders who have been burned recently.
From what I can see the debt service coverage ratio has been smashed because the business debts (loans and leases) can only be serviced at the upper end of recent historical GM% range whilst also being able to invest in needed capex. I also can't see how a 2x DSCR for the working capital facility can be met when the lease facility repayments chew up so much of the cash the business generates - it seems they would continue to be breached especially with another ship under construction which would also be financed via sale and leaseback.
A few things from the FY16 annual report, 1H17 half year report and prospectus of interest.
Debt maturity profile (FY16 Annual report):
1H17: $25.1m
2H17: $17.0m
FY17: $42.0m
Debt repaid in 1H17:
Proceeds from debt: $71.7m
Repayments of debt: $78.0m
Net debt repayment: $6.3m
Shortfall to FY16 annual report for 1H17 debt repayments: $18.8m
Historical GM% (Prospectus, financial reports):
1H17: 05.8%
2H16: 12.5%
1H16: 18.6%
2H15: 22.2%
1H15: 14.4%
FY14: 18.6%
FY13: 16.8%
1H17 financial performance:
Reported:
Revenue: $ 281.9m
GM%: 5.8%
GM$: $ 16.3m
Opex: $ 17.6m
EBITDA:$ (1.3)m
Adjusted to 2H16 GM%:
Revenue: $ 281.9m
GM%: 12.5%
GM$: $ 35.2m
Opex: $ 17.6m
EBITDA:$ 17.6m
EBITDA from GM% improvement: $17.6m + $1.3m = $18.9m
1H17 debt repayment shortfall with GM% improvement: $18.8m - $18.9m = $(0.1)m
Essentially if GM% in 1H17 had been similar to those witnessed in the prior half year (2H16 - second lowest on recent records) WLD would have been able to meet its debt repayment commitments for 1H17 (on top of additional capex and interest) though may have still breached DSCR for the working capital facility.
There are already signs that GM% in 2H17 will be better than those reported in 1H17 and hopefully management is able to renegotiate the working cap facility covenants/terms so that they are more suitable for the business needs at this time.
Any surplus cash flow generated from higher GM% should hopefully be dedicated to reducing term debt to a level which doesn't cause covenant breaches in future if GM% were to drop again to present levels. From what management said they are considering to fix the leverage issues in the 1H17 report:
* Not sure what assets are available to reduce debt - especially when assets are still being acquired
* More debt is not the answer - maybe switching debt to sources with lower DSCR requirements
* Equity won't work at this SP (might raise $10m) - 2016 AGM shows no s/holder appetite for a major placement and I doubt Mauro has the liquidity to maintain his o/ship percentage if one was undertaken.
GLTAH
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