I thought the advance press release issued on Sep 16 was good. The press release on the implementation issued on Sep 18 is even clearly better:
Thanks to strong demand, Boreo raised more hybrid capital than expected, and the interest rate on the new hybrid dropped from the old 10.75 percent to 8.75 percent. At the same time, a €60 million long-term bank financing arrangement was implemented, of which €13 million is earmarked for acquisitions. According to the company’s own estimate, the average financing cost will decrease by about one percentage point and annual loan repayments will decrease. At the same time, financing has been structured to retire the old, expensive €20 million hybrid.
And this financing arrangement comes in a situation where the company has 7 consecutive quarters of growth behind it, and the operational development of the latest Q2 was strong:
- revenue grew by 12%
- organic growth was 7%
- operational EBIT grew by 19% and was €2.6M
- H1 operational EBIT grew by 21%
- net debt / EBITDA was 2.1x
- H1 cash flow from operations rose to €3.7M from -€0.2M in the previous year.
When you add the strong organic growth, earnings leverage, and cash flow seen in Q2 to the financing arrangement, along with the information about the acquisition pipeline disclosed in the Q2 release, the investment case becomes quite interesting.
From an investor’s perspective, three overlapping drivers emerge:
- The current business is growing and profitability is improving. Clear evidence of this was already seen in Q2.
- Financing costs are decreasing. Boreo estimates that the average financing cost will decline by about one percentage point.
- New financing capacity is created for acquisitions. There is €13M of financing targeted solely at acquisitions and the refinancing of acquired targets, and in addition, the entire financing structure becomes more flexible.
Boreo simultaneously gets more earnings from its current business, cheaper financing, and more capital to generate new earnings through acquisitions.
Therefore, I would consider it very likely that Inderes and Redeye will have to significantly update their EPS forecasts, financing costs, and WACC assumptions in their next updates, and through those, their valuations and target prices. The baseline direction of impact as a whole is one that plays into the hands of the Boreo investor, although the analysts’ final target price changes will only be seen in their updates.