Ardagh Group - Looking Forward - Model update
All,
Please find our updated analysis here.
The recapitalisation closed in Q4, and Ardagh Group can now start to look to the future. The large restructuring costs are behind it, but there will be raised Capex for some time as the company catches up. Also, the environment for glass packaging remains tough, with some replacement by aluminium and even PET happening. We expect Ardagh Group to slowly grow volumes and margins over the next four years. We will do more updated modelling once we see some trading of the new company.
Investment Considerations
- We have not taken a position in the capital structure yet; our focus is on the 1st and 2nd lien bonds (USD and €), but we are not seeing much trading yet. The 1st Lien notes are trading at 97; the bonds have three years of call protection. And are then callable at 104.75. The 1st Lien is trading at 97%, and we see about 6 points of upside (to 8.75% YTW) and 3 points of downside (10.5% YTW). The 2nd Liens should trade 150bps wider than the 1st Liens, which suggests 1 to two points of downside.
- The 1st Lien looks more interesting at 12% (or 92%), there are plenty of sellers about, and at present, any rally in the SSNs is going to be met by sellers.
- Asset sale proceeds will be offered to 1st Lien holders at 101.5. If the 1st Lien holders do not tender, the proceeds will be offered to the 2nd Lien holders. The main asset sale we expect in 2026 will be Trivium ($450m for Ardagh).
- The value of the equity given to the SUN (92%) and PIK (7.5%) holders will be very hard to trade. We value the equity held by SUN holders to be worth 23% in recovery, and this assumes three years with a 20% per annum distressed discount. There is some upside here, but we are not expecting Ardagh Group to be floated any time soon.
- Our forecasts are currently well below the company guidance given at the time of the restructuring, but in the absence of improved trading in 2025, we are not going to update our forecasts yet.
Key Conclusions
- The Trading and the DCF sections highlight the very tough operational environment for the glass business and how it will only slowly improve. We expect margins and cash flow to improve in 2028/2029.
- We see the 1st and 2nd Lien as being covered by the value of the glass business. The Equity will be difficult to value as there is no ready market, but we can see recovery for SUN’s holders improving over the next three years.
- The SUNs are heavily dependent on continued strong performance at Ardagh Metal Packaging for their recovery.
- As our industry section shows, there is a substitution of Glass containers with Aluminium, this is driven by the high cost of energy (particularly in Europe), but also an increasing preference for lightweight cans.
Recent Trading
Q4 2025
- The Ardagh Group is moving beyond the restructuring story it has been for two years. AMP stock is up on the day, which is good news for former SUN holders.
- The glass business continues to struggle, but we still see it as covering the SSNs. Volumes in 2026 are expected to be at best flat in Europe, +3% in Africa and flat in NA. Notwithstanding this, Ardagh Glass guidance is for $700m of EBITDA (slightly up from 2025) plus the $200m in Dividends from AMP.
- The high-level guidance from the company suggests that it will see cUSD100m in cash outflows in 2025, but this is comfortably covered by >USD900m in cash. Management also indicated that Capex will rise in the medium term as the company catches up on maintenance.
Q3 2025
- The Q3 Revenue/EBITDA numbers in the Ardagh trading statement are in line with our forecasts; volume growth was -1%.
- We estimate that cash at the group level was $380m, which is around $60m below our forecast. We expect that the shortfall is down to negative working capital moves.
- Ardagh Group will publish full accounts once the recapitalisation has been fully implemented, but given the requirement to follow a court process, completion could take two months or more.
I look forward to discussing this with you all,
Aengus
T: +44 203 744 7055