BioGroup - Testing the pricing outlook - Model Update - Positioning
All,
Please find our updated analysis on BioGroup here.
BioGroup’s results were broadly in line with expectations, supported by the clear guidance provided by the Company. We continue to question the use of “leverageable EBITDA,” which generates more favourable leverage metrics, but we acknowledge that underlying EBITDA improvement should become evident in the coming quarters. Our analysis indicates equity value of c.10x, and although interest coverage remains weak, the level of equity protection provides sufficient justification for taking a position.
Investment Rationale:
- We are taking a 3% long position in the BioGroup Sub bonds (Senior Notes at Laboratoire Eimer) at 81%. Although the bonds sit at the bottom of the capital structure and the issuance is relatively small, the substantial equity cushion provides meaningful support, giving us confidence that BioGroup will successfully refinance its capital structure in FY27.
- We expect EBITDA improvements over the coming quarters, driven by the recent acquisitions and cost savings. Despite the reduction in price, the Company continues to see revenue growth, underlying the wider market growth. The upside to a Q3 2027 refinancing is an 18% YTC, which we see as achievable assuming a full capital structure refinancing at that time.
- We are limiting the position to 3%, as downside risks remain material. Any further press leaks regarding potential changes in pricing dynamics in France could cause the bonds to fall 5–10pts. However, there remains top-line growth despite the price cuts. This drives further EBITDA improvement, and notwithstanding the price reduction, the business remains FCF positive after interest.
- The Company continues to buy out minority biologists, a liability currently estimated at €250m. Although this obligation is theoretically subordinated to bondholders, we have conservatively treated it as pari-passu with the Sub bonds in our analysis. It may ultimately sit at the CAB entity, but regardless, these liabilities are expected to be paid down over the coming years. Even after incorporating these buyout obligations, leverage increases by only 0.8x, and our leverage metric (excluding adjustments) stands at c.6.8x—comfortably below the 10.0x reflected in the DCF calculation, highlighting the underlying strength of the capital structure.
- With no upcoming maturities and the Company continuing to deliver strong quarterly results, momentum remains positive. Furthermore, as the price decline occurred in September 2024, future quarterly reporting will benefit from materially easier comparables, supporting improved year-on-year performance metrics.
Summary:
- BioGroup is a leading private medical laboratory group providing diagnostic testing services across five countries, with France accounting for more than 70% of revenue and Belgium over 20%. The Company has followed an acquisition-led growth strategy, expanding from a single laboratory at its founding in 1998 to approximately 130 sites by 2016, and accelerating thereafter to 1,600 locations as of December 2024.
- The name has attracted attention recently due to comparisons with Cerba, but BioGroup is considerably less leveraged. In line with its trading levels, BioGroup is expected to complete a traditional refinancing in FY27, without the need for a broader restructuring.
- The Company remains impacted by reimbursement pressures in France and Belgium, where authorities have reduced prices as testing volumes have increased. However, BioGroup differentiates itself through moderate leverage of 7.2x gross debt and liquidity equivalent to approximately 1.9x FY24 EBITDA.
- BioGroup has no debt maturities until February 2028 and is expected to refinance its capital structure in late FY26 or early FY27.
- There are concerns regarding the ownership structure, which remains somewhat opaque. While this is partly driven by French regulatory requirements, the main issue is the lack of transparency around the co-investors alongside the Dr. Eimer family, and how economics are shared between the family stake and the co-investors.
- The Company continues to pursue bolt-on M&A opportunities, most recently increasing its ownership stakes in two separate Spanish operations to 50% and 100%, respectively, during the summer of 2024.
Potential Next Steps:
- The Company are not due to report FY25 numbers until April/May 2026. There is the possibility of further discussion from the French state regarding the pricing mechanism in the broader healthcare segment.
- 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.
Happy to discuss,
Tomás
E: tmannion@sarria.co.uk
T: +44 20 3744 7009
www.sarria.co.uk