Sarens 

Belgian crane rental business Sarens (B/B) reported decent results for FY 22 with its topline expanding +13% YoY €651.4m on the back of price increases reflecting inflation pass-through efforts. EBITDA growth, however, was minimal (+2% YoY to €144.7m) as an increasing cost base continued to erode the EBITDA margin. In line with their goals, Sarens’ continued to diversify their revenue base, moving away from the highly cyclical Oil & Gas end market and large global projects revenue.

Once again a 100% family owned business, Sarens remains capped on capex spend (<€50m for any four rolling quarters) by its covenants, while Loxam and Kiloutou, peers in the EU equipment rental market, invested heavily in their fleet during FY 22. A favourable working capital (WC) swing in Q4 22 was not enough to mitigate the large WC outflows seen earlier in the year, totalling -€41m for FY 22, which remained the biggest headwind for operating cash flows and resulted in lower but positive FCF (€10.6m).

On the debt front, management is committed to de-leveraging further announcing a tender offer to buy back up to a maximum of €30m of their €300m SUNs due 2027. This was done on the back of €8m worth of bond buybacks earlier in 2022. FY 22 liquidity came in at €184m comprising €61.7m cash, €36.7m available under the revolving lease facility, and €86m available under the €118m RCF.

Management on a conference call held on Tuesday (11/04/2023) was reluctant to provide much FY 23 guidance but emphasised their cost control and pass-thru measures.

Pro-Gest 

Italian paper & packaging manufacturer Pro-Gest (Caa1, CCC+) posted dismal Q4 22 results with revenue down -37% YoY to €135m and reported EBITDA -67% YoY to €6m. “Soft market conditions” persisted from Q3 22 as we expected driven by weak demand especially in paper mill and high inflation. 

Annual results were slightly better supported by a stronger H1 22 performance but not by much. FY 22 revenue barely budged (+2.7% YoY to €733m), as higher sales prices struggled to offset the volume slump). FY 22 reported EBITDA was €109m, a seeming improvement on €83m in FY 21. However, in 2022 the group received €51m gas subsidies from the Italian government, meaning its underlying EBITDA (excluding subsidies) was only €58m representing a -30% YoY like-for-like profit decline. The paper mill segment saw a sharp topline decline during the year with direct sales drying up, so Pro-Gest diverted most production internally to support its corrugator/packaging factories. 

Annual gas costs were elevated at €214m (vs €130m, FY 21) but adjusted for the above mentioned gas subsidies, the hit was manageable. Gas costs stabilised in Q3 22 and eased in Q4 22. If this trend continues, it is likely be a smaller headwind in 2023. Pro-Gest had a poor start to 2023 with revenue in Jan-Feb 23 down 37% YoY due to continuing inflation and unfavourable market impact, though management expects better results in H2 23.

The group ended FY 22 with a €43m FCF burn as reported EBITDA was eroded by w/capital (€63m), capex (€43m) and interest (€45m) payments, all within management estimates. FY 23 FCF is guided to be somewhat better supported by i) the expected reduction in the €48m AGCM fine (by an amount yet unknown), ii) higher gas subsidies (45% of the gas bill guided in Q1 23, 20% in Q2 23), and iii) capex guided “a bit lower”. Without government subsidy support, net leverage would have spiked to 8.7x (€504m/€58m) compared to 5.5x (FY 21: €461m/€83m). However, FY 22 net leverage came in at 4.9x on a reported basis, and at 3.8x based on management’s normalisation to EBITDA.

The group said it will continue to explore its refi options with the help of a new advisor Goldman Sachs (who replaced Credit Suisse) but no detailed plans were disclosed on the investor call.

Paprec

French recycler Paprec (Ba3/BB-/BB) benefitted from strong volumes processed (+13%) in FY 22 and indexation clauses in waste purchases, protecting gross profit (+23%) from the decline in raw material prices in H2 22. The company continues to expand into new markets through M&A, while it warned energy price increases will be more difficult to hedge in 2023.

The company faced a slowdown in the prices of recycling materials in H2 22, but was able to offset this through indexation clauses, allowing them to pass through commodity prices to customers, and effectively protect margins from any sudden fluctuations (EBITDA +2% YoY). In France, electricity prices surged during the year, but have fallen in recent months due to, among other reasons, the soft winter and government-led price caps.

On M&A front, Paprec started Q1 23 strong with three more bolt-ons, and continues to build its position in Spain, where management expects to generate €100m in revenues by the end of 2023. The company has been able to maintain its below 3x leverage target (2.9x at year-end), and was assigned a new BB rating from Fitch following its results. Management revealed on the call that it plans to stop its partnership with Moody’s as a result, and maintain two ratings (S/F).

iQera (MCS Groupe)

After growth in FY 20 and FY 21, a challenging macroeconomic landscape led to iQera's FY 22 revenues dropping 7% YoY. Cash EBITDA also took a hit, down 17%, primarily due to reduced collections on their own book. With consistent servicing revenues of €122m, the decrease in total revenues is driven by gross collection revenues of €200m, down from €223m in FY 21. A lack of new debt sales or NPL repricing, due to interest rate hikes and increasing macro uncertainty, led to investment volumes falling to €38m in FY 22 versus €91m in FY 21. Management says it remains focused on ‘value investing’ and ‘maintaining price discipline’ and therefore is unwilling to overpay for new loans to maintain revenue levels.

Backbook performance remained strong, however, with €197m collected and revaluations adding €57m in FY 22, now over €100m in two years, highlighting the existing portfolio’s resilience. iQera’s existing book is largely secured in nature, and backed by French residential real estate. Estimated remaining collections (ERC) decreased 13% in 2022, following strong collections and limited re-investment activity. However, across 2019-2022 average annual portfolio acquisitions were 54% above the ERC replenishment value, growing ERC at a 9% CAGR.

In response to anticipated lower activity levels in 2023, cost-cutting measures have been implemented, with a 3% QoQ cost reduction in Q4, with additional savings projected into 2023. iQera is also exiting low-margin contracts, replacing them with more lucrative value-add services, as seen by a new minority stake in MF Law, a law firm specialising in large NPEs and distressed Real Estate, bringing in €7m in additional servicing revenue.

Management is assessing the remaining €126m stub debt and commented they could use liquidity to repay it and are unconcerned over it becoming current debt in FY 24.