BioGroup - All eyes on the shareholders - Model Update
All,
Please find our updated analysis on BioGroup here.
Given the spread widening during the Summer, we have re-visited the investment case for a long trade. The sub bonds are attractive, and given that the actual maturity is likely to be 12-18 months earlier than stated maturity, there is some pull-to-par available to bondholders. Additionally, we calculate an EV in excess of the debt structure, which further supports a long trade. However, we remain cautious on the wider sector, and with the French state as ultimate payer, we expect further pricing pressure in the medium term.
Investment Considerations:
- We are not taking a position in BioGroup’s outstanding bonds at this point. Although yields on the 2029 sub-bonds have widened over the summer to c.9%, we retain our caution primarily due to broader concerns regarding the French tariff outlook.
- The bonds have recently been supported by rumours that the shareholders are considering selling the business. We don’t doubt that some of the financial shareholders are seeking an exit; any sale against a background of uncertainty of future French tariff rates will be difficult to execute.
- Upside for the sub-bonds is c.95% or 6pts if the shareholder exit story gains momentum. The bonds will trade to a take-out in Summer 2027, which, at 95% yields 8%. Downside is likely 8-10pts, or a yield of 12.5%, on the back of poor Q3 numbers and further speculation about tariff reductions in France.
- We continue to monitor the name, and if the sub-bonds trade back to 85/86, we would consider taking a position.
- The Senior Secured bonds at 6% yield don’t offer much upside without an early take-out. A refinancing/equity sale in Summer 2027 improves the yield to 7.5% but this is insufficient to compensate for the wider market concerns. The downside is only 3-4pts due to a decent equity cushion beneath the bonds, limiting any impact of a poor outlook.
Recent Q2 Results:
- Despite many questions on the topic, management declined to comment on the potential impact of recent recommendations from various French agencies on pricing dynamics within the health testing subsector. The
- The results themselves were broadly in line with our expectations, with revenue remaining flat and EBITDA €5m lower, primarily due to increased operating expenses. However, the macro picture will be the main driver of spreads in the coming quarters.
- Separately, BioGroup completed a small acquisition in Spain on June 30 for approximately €10 million. While this transaction further consolidates its position in the Spanish market, its relative size means the impact on overall financials is limited.
- Additionally, management disclosed that the minority put options now total €275m.
Shareholder discussions:
- BioGroup shareholders have informally appointed Centerview Partners to explore options for an exit. This appears to be at the preliminary stage, with initial valuations at €5bn or 10-11x EBITDA. However, with expected downward pressure on tariffs due to the French budgetary constraints, a sale of lofty multiples is not a forgone conclusion.
- The shareholders include the Eimer family at c.36%, De Raedt-Verheyden family (the former owners of the Belgian business), 10%, plus financial investors, including Caisse de dépôt et placement du Québec, ICG and EMZ Partners.
- The fact that shareholders are evaluating their options should not be a surprise to bondholders. However, with no maturity until February 2028, we view this press leak as the commencement of a process which should yield some options in FY27.
Happy to discuss.
Tomás
E: tmannion@sarria.co.uk
T: +44 20 3744 7009
www.sarria.co.uk