Rekeep - Asset Disposals In Sharp Focus - Model Update

All,

Please find our updated Rekeep analysis here.

Note: Beta testers can check Rekeep on the Beta portal here.

Rekeep’s 1H26 results highlighted continued pressure on EBITDA, with higher labour and third-party costs weighing on margins despite stable revenue and strong contract wins. While leverage has increased to 6.2x, the bonds have fallen to 76c, bringing the potential asset disposal into sharper focus. Our analysis suggests the energy business could be sold for c.€275m, with proceeds used to repay debt and potentially redeem the 2029 SSNs at 103c. We therefore see the asset sale as the key near-term catalyst, while the resilient backlog and absence of near-term maturities provide support to the credit.

Investment Discussion

  • We are maintaining our 5% long position in Rekeep’s Senior Secured bonds, initiated at 95c in April and now trading at 76c following the post-results sell-off. The key question is no longer whether Rekeep can organically deleverage, but whether management can execute on the asset disposals it has identified. At current levels, we see sufficient upside to maintain the position while awaiting execution.

  • Rekeep remains a relatively defensive business, with c.80% of revenues generated from public-sector and healthcare activities and a €2.6bn backlog, plus a further €1bn of awarded tenders awaiting formalisation. The backlog provides good revenue visibility, but recent results demonstrate that revenue stability does not guarantee EBITDA stability.

  • Q2 EBITDA fell 23.7% YoY to €22m, reflecting the expiry of higher-margin domestic contracts, higher labour and third-party costs and weakness in the Polish catering business. While management has identified measures to restore profitability, leverage has increased to 6.2x and we are not relying on a rapid operational recovery to drive the investment case.

  • Cash generation has held up better than earnings, with Q2 FCF increasing to €34m from €22m. However, this was supported by working capital and does not provide sufficient organic deleveraging at current EBITDA levels. Our model therefore remains broadly FCF neutral, with leverage only falling gradually without asset disposals.

  • The key catalyst is the potential sale of the energy business, Teckal.** We estimate a potential disposal value of c.€275m, or approximately 6.5x EBITDA. While this is not particularly deleveraging on a multiple basis, the bond documentation requires disposal proceeds above €15m to repay debt, after the €5m RCF priority, and then the SSNs at 103c. A transaction of this size would therefore provide a clear route for the bonds to return towards par.

  • The documentation provides additional support to this catalyst. The restricted payments covenant was tightened to a 2.0x Consolidated Net Leverage Ratio and the IPO-related dividend basket was removed. This limits the scope for value leakage while the company remains highly leveraged.

  • The main downside remains further EBITDA deterioration. At current leverage, continued margin pressure could see the bonds trade towards 70c. However, the September 2029 maturity means there is no immediate refinancing requirement, giving management time to execute disposals and address the operational issues.

Potential Asset Sale

Rekeep has restructured its energy business into a separate entity, Teckal, and the bond documentation provides a specific mechanism for the use of disposal proceeds. Any proceeds above €15m must be used to repay debt, prioritising the RCF and then the SSNs at 103c.We estimate Teckal could be sold for c.€275m, implying a valuation of approximately 6.5x EBITDA. After the €5m RCF repayment, the majority of proceeds could therefore be directed towards the SSNs.Importantly, the attraction of the transaction is less about the valuation multiple than the use of proceeds. A disposal would provide an immediate reduction in debt and, given the 103c redemption mechanism, establish a clear path for the bonds to recover towards par.

Recent Results

  • Q2 results were below our expectations, with revenue broadly in line but cost pressure driving a material EBITDA deterioration. Higher labour costs accounted for an estimated €2–3m EBITDA impact, although the more significant pressure appears to have come from higher third-party and service costs.

  • Contract wins remain encouraging, with €3bn awarded in 1H26 and a further €1bn awaiting formalisation. The €2.6bn backlog represents 2.0x LTM revenue, with c.73% relating to healthcare. The issue is therefore currently one of profitability rather than revenue visibility.

  • Cash flow was supported by working-capital management, with Q2 FCF of €34m despite lower EBITDA and higher interest costs. This reinforces our view that working capital can support cash generation, but cannot substitute for EBITDA recovery as a longer-term deleveraging mechanism.

  • Management has now explicitly refocused its deleveraging strategy on targeted asset disposals, working with advisers to achieve a “visible and lasting” reduction in leverage. For bondholders, execution of this strategy is therefore the key determinant of future bond performance.

  • At 76c, we see an attractive risk/reward if management executes on the asset disposal strategy. The potential Teckal sale provides a tangible route towards a 103c redemption, while the resilient backlog, positive FCF and 2029 maturity provide time for management to execute. The principal risk is further EBITDA deterioration, but absent a material operational deterioration, we see the current price as providing meaningful upside to an asset sale or a stabilisation in earnings.

Happy to discuss,

Tomas

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

Tomás MannionREKEEP