Cerba - Bought time - Model Update - Positioning
All,
Please find our updated analysis on Cerba post Q3 numbers here.
The equity sponsors are in the process of injecting an additional €100m of liquidity into the Company, pari passu with the Senior Secured Debt. This prevents a near-term liquidity crisis and allows the sponsors to retain control. While the injection extends the time, it does not change the underlying need for a restructuring..
Investment Rationale
- We are exiting our 4% Cerba short position in the Senior Secured Bonds at 75%. We initiated the short in February 2025, taking a 2% position in the seniors at 88% and a 1% short position in the subs at 68%, and subsequently covered both in April at 80% and 39% respectively. We re-established a 4% short in the Senior Secured Bonds at 75% in early May, which we are now covering.
- Our short thesis remains unchanged. Despite modestly improving our forecasts, we continue to expect the business to be FCF neutral, at best, after interest in FY26. However, the Senior Secured debt is now concentrated in the hands of a small number of funds, which reduces liquidity for a short posiition. The concentrated holding could enable a more coordinated creditor action and increase the likelihood of an aggressive restructuring or liability-management initiatives which may or may not benefit all creditors.
- Our DCF model indicates an overall EV valuation of c.10x, implying close to full recovery for all creditors. This must be viewed alongside our recapitalisation analysis, which highlights the absence of meaningful cashflow and limited incremental borrowing capacity.
- Any future restructuring will be complicated by the new €100m of capital injected by EQT on a pari passu basis with the Senior Secured Debt.
- With a concentrated holder base, we see limited price volatility in the near term. Downside risk is 5–10pts on further negative developments from the French government regarding the regulatory structure of the laboratory sector. Upside is capped: the bonds are unlikely to trade above 80 (c.5pts upside) given the need for an eventual comprehensive restructuring.
Recent Results
- The tone of the Cerba call remains focused on self-help and cost savings as the Company attempts to grow into its capital structure. In practice, Cerba is running short on liquidity, prompting shareholders to commit an additional €100m via a new note issued pari passu with the Senior Secured Debt. Further divestments of non-core assets may be required. By providing capital through the new Incremental Facility Note, sponsors are effectively priming the Unsecured Debt.
- Operating performance was broadly as expected. Higher volumes at lower prices resulted in revenue declining 3%, while EBITDA margin expanded by 130bps. This delivered a €3m increase in EBITDA, largely driven by cost initiatives.
Next Steps
- Cerba continues to pursue asset sales, but with leverage at 12.5x, the hurdle for any sale to be deleveraging is extremely high. A sale of the TIC business is under consideration, but we do not expect any transaction to materially reduce leverage. Cash proceeds may extend the runway, but an eventual debt write-off remains unavoidable.
- A report published over the summer by two French government agencies reinforced the regulatory risk facing the Company. Political uncertainty in France raises the likelihood of further reimbursement cuts, consistent with those signalled in the report. Timing remains unclear.
Happy to discuss.
Tomás
E: wfelix@sarria.co.uk
T: +44 203 744 7003
www.sarria.co.uk