BioGroup - Having done the cashflows

All,

Please find our initiation on BioGroup here.

Many of you have asked us to look at BioGroup following our detailed analysis on Cerba. Although BioGroup operate and is subject to the same pricing pressures as Cerba, the comparatively lower leverage is the defining difference between the two businesses. BioGroup also benefit from having no maturities until 2028, and our model of BioGroup’s financials demonstrates that a traditional refinancing will likely take place in FY27.

Investment Rationale:

We are not taking a position in BioGroup's bonds currently. The sub-bonds (Senior Notes at Laboratoire Eimer) currently offer 7% yield, which isn't sufficient yield for our portfolio. However, at 7%, the yield is favourable given the overall market and the level of equity cushion we see beneath the bonds. We don't see any major downside in bonds from current levels, and we expect BioGroup will be able to refinance the capital structure in FY27 without any issues.

- There is some concern is the ownership structure, which is a little opaque. This is partially due to French regulation, but the main negative is the co-investors with the Dr Eimer family and the lack of details of how the economics is split between the family stake and the co-investors.

- The Company continue to buy out minority biologists, with a €290m liability. Theoretically, this is subordinated to bondholders; we have included it pari passu with the sub-bonds. It may rank at the CAB entity, but regardless, the liabilities are expected to be paid down over the coming years. We are seeking further clarity. This increases leverage by 0.8x.

- Without further tightening in the wider market, we see limited upside in the bonds. Again, we reiterate that we don't see any near-term event that will cause the bonds to trade off.

Background:

- The name is topical because of its similarity to Cerba. However, BioGroup is not as leveraged, and in line with its trading levels, the bonds will do a traditional refinancing in FY27.

- As a consolidator in the market, BioGroup are well positioned to benefit from the increased volume expected over the coming years. This may not offset the tariff reductions.

- BioGroup has initiated an efficiency plan for the coming two years, which includes right-sizing labs, aligning resources with rush-hour demand, consolidating platforms and reinternalising outsourced tests, reducing costs, and optimising procurement through supplier consolidation. - BioGroup includes €96m of efficiency plan initiatives, which will outstrip the €31m negative impact from tariff changes. This increased LTM EBITDA by €65m, defined by BioGroup as LTM leverageable EBITDA. We do not include these savings in our leverage stats but have included some in our model.