Atalian – Time to move on - Positioning
All,
Please find our unchanged analysis here.
We participated in the Amend and Extend operation for Atalian in March 2024, but the performance has been disappointing, and we are exiting our 1% NAV position at a loss of 0.5%. It is time for us to move on from this position. However, with c€900m of debt outstanding, we will continue to cover the name. We will update our analysis after the FY results, which we expect in late March.
Investment Rationale:
We are selling our 1% of the NAV holding of the Atalian SUNs at 25c/€. We made the trade at the time of the Amend and extend operation in March 2023, entering at 72c/€; the cost to the portfolio is 0.5%. Our thesis was for renewal rates to improve boosting EBITDA. Instead, renewal rates are only now stabilising, and Atalian is still struggling to pass on inflationary costs to French clients. There have been issues around Working Capital, which management said would reverse quickly, but no progress was made in Q2.
- At the time of the A&E agreement, we had expected EBITDA of >€100m in 2025, rising to €115m by 2027. Now we expect <€90m in 2025 and only a modest improvement over the next 3 years. Our DCF valuation for the bonds has fallen from c80c/€ to closer to 50c/€. Whilst this is above the current trading levels of 25c/€, we do not expect market pricing to improve in the near term.
- EBITDA multiples are going to be around 5x => a valuation of €500m on 2027 EBITDA, which would be a 55c/€ undiscounted (38c/€, discounted for 2 years at a 20% distressed discount). Again, above current trading levels, but we do not see any positive momentum.
- In December, we reported on rumours in the French press that the company could be sold or another A&E may be attempted. We see 10 points of downside as results continue to at best flatten. If a potential sale emerges in the next three months, we could miss out on 10 points of immediate upside, but we have been let down too often by Atalian.
- With >€870m SUNs outstanding, we will keep covering Atalian for now.
I look forward to continuing to discuss this name with you all.
Aengus
T: +44 203 744 7055