Iceland - Bagging The Refinance - Model Update

All,

Please find our updated analysis on Iceland here. 

We have updated our model to reflect Iceland’s Q3 results, which came broadly in line with our prior expectations. We made modest adjustments to the model but continue to take a cautious view on EBITDA growth over the next 12–18 months. This stance differs from management’s guidance. While we considered increasing our estimates, we decided against doing so, as we did not want to complicate our refinancing analysis with a marginal EBITDA uplift. Based on our current assumptions, Iceland can execute a refinancing, although coverage remains tight at around 1.5x, particularly if the refinancing cost exceeds 8%.

Investment Rationale:

- We exited our position in November when yields tightened inside 6% and do not intend to re-enter at current levels. That said, we do not share market concerns around the feasibility of a full refinancing in late FY26. Although our model assumes a slight EBITDA decline in FY26 (March 2026 year-end) versus FY25, we expect Iceland to continue deleveraging over the coming quarters.

- We expect the company to pursue a full refinancing following the publication of FY26 results in July. The call schedule on the 2027 fixed-rate bonds steps down in August 2026, which supports this timing.

- Upside in the bonds remains constrained by the call structure, particularly given the high likelihood of a refinancing in July/August 2026. Yield to that period stands at approximately 6.5%.

- While some downside risk exists, it is limited by the company's performance and the high probability of a refinancing.

Refinancing:

- Most of Iceland’s capital structure matures in December 2027, with an additional £250m due in May 2028. We expect the company to execute a full refinancing later this year, following the release of FY26 results in July, with our base case pointing to an autumn transaction.

- Iceland holds substantial cash balances and will use part of this liquidity to reduce the refinancing requirement. We assume the company retains cash equivalent to two times its annual interest bill, with the remainder applied to debt reduction.

- We expect Iceland to secure financing at approximately 8%. Even at a 9% interest rate, the company can complete a full refinancing with interest coverage of around 1.4x. At 1.5x coverage, recovery reaches approximately 96%.

- Gross leverage stands at approximately 4.6x, with net leverage below 4.0x, both calculated on a pre-IFRS 16 basis.

- Management guidance suggests an even more straightforward refinancing outcome. However, we deliberately maintained a conservative model to demonstrate the structure’s refinancability under less favourable assumptions. We reiterate our view that market concerns around refinancing risk remain overstated.

Happy to discuss.

Tomás

E: tmannion@sarria.co.uk
T: +44 20 3744 7009
www.sarria.co.uk