Pfleiderer - Surfing the Sponsor

All,

Please find our updated analysis on Pfleiderer here.

Pfleiderer is not the only 2024 deal that did not quite extend its capital structure as far as hoped. Others never got over the line or are already in “constructive" discussions for further cash injections. Pfleiderer then looks much better, in that it seems to need fresh cash again only next year. It’s perhaps unfortunate then that, on our calculations, the forthcoming negotiations should take place largely before the business has a chance to demonstrate its turnaround. 

Investment Considerations:

- Credit stats will get worse before they get better until we receive Q1 figures in June of next year, which should be around the same time that the company requires fresh cash.

- We would not be buying these bonds above 50c/€. At 75c/€ Pfleiderer SSNs are still a bet on SVP, which, considering the progress management appear to be making, seems reasonable. However, with upside and downside of 25 points each, we do not feel compelled to take the fundamental risk of the situation.

- We foresee another cash crunch in 2026 at a time when the company has had little time to post more than the Q126 results in which Project Nord will still be ramping up and which should only have the benefit from cost savings achieved in 2025 (said to be on track). This could play in the Sponsor's hands as creditors will be staring at 50c/€ if they don't take the likely aggressive deal.

Key Insights:

- Cash burn is severe: even with 20% volume growth, liquidity would last only six to nine months, pointing to an urgent need for fresh capital; RCF is assumed drawn by H225 (Model).

- Q225 results, particularly in EWP, modestly beat expectations, hinting at a possible turnaround in the German business after earlier signs of “green shoots” (Current Trading).

- The gap between reported EBITDA and Adjusted Pro Forma EBITDA remains wide — Pro Forma is >2x reported. We treat €14m of the Pro Forma adjustments as normal/recurring and therefore only recognise up to €6m of incremental, credible improvements. Excluding Efficiency Projects (which need upfront investment), the remaining tangible Pro Forma items — internal cost cuts, a largely delivered project and two built assets — total c.€40m; after allowing for c.€10m of FY25 headwinds, the balance could push 2026 EBITDA toward c.€90m (Current Trading).

- The planned Stettin storage facility could support Silekol margins, but will likely consume working capital before it improves cash flow (Model).

- EWP operates as a commodity business reliant on resin (15% of COS, chiefly sourced from Silekol) and wood inputs, with demand tied to the cyclical DACH renovation market and concentrated premium suppliers; volumes collapse when rental yields compress, as they did in recent years. (Industry). Management, however, has been signalling green shoots in the sector (current trading).

- Silekol sources urea on multi-year contracts with groups like Grupa Azoty, stabilising supply and, its new Stettin facility should begin shielding it from commodity price swings; its downstream resin applications are broad, but it remains a small player in a commoditised market (Industry).

- The divisions share little synergy—only ~20–25% of Silekol sales go to Pfleiderer—and are now managed separately to facilitate a potential break-up (Company).

- Both units are highly pro-cyclical: EWP is acutely exposed to the premium renovation sector, while Silekol’s raw-material warehouse (H225) will help dampen input swings but cannot solve demand cyclicality (Company).

The next quarters:

- Project Nord seems to be going live in Q126, and management are indicating EWP's cost cutting measures on track. Together with investments in a UFC Tower and a PF Reactor those should amount to EBITDA improvements of €40m next year. Substantial, but too little to turn FCF positive - before having to pay interest and too late to show but Q126 before negotiations begin.

- We are not seeing any resumption of construction so far, and at current demand volumes, Pfleiderer only has a year before it will need more cash again. Observing the sponsor in other deals in Germany this year, we see a danger that its position will be more aggressive than it was when it last injected €75m in 2024.

Here to discuss this name with you,

Wolfgang

E: wfelix@sarria.co.uk
T: +44 203 744 7003
www.sarria.co.uk