28th Apr 2016 13:04
LONDON (Alliance News) - Cambian Group faces an uncertain future, as its 2015 results highlighted the extent of its financial problems, Investec said, putting its price target and recommendation for the stock under review.
On Wednesday, the behavioural health services company reported a pretax loss of GBP16.4 million for 2015, widened from a pretax loss of GBP4.2 million in 2014, as a rise in revenue to GBP290.1 million from GBP240.6 million was offset by a step-up in administrative costs, and exceptional costs including a GBP21.7 million fixed asset impairment impairment.
The results were delayed after a long audit process, and Berenberg said they were "mixed", with very poor operating results offset by the "welcome news" that it has successfully renegotiated its debt facilities.
Back in March, the company warned its financial performance had resulted in a breach in its banking covenants and agreed a temporary waiver with its lending banks to facilitate talks to amend its facilities agreement. The company agreed terms for the amendment of its facilities agreement Tuesday, it said.
Under this amendment, a fee of GBP2.9 million is payable immediately, being 1% of the total GBP290 million facilities, with a flat rate margin of 3.75 percentage points over LIBOR payable on the amounts drawn under the facilities. The facilities are split into two tranches, 'Tranche A' of GBP120 million and 'Tranche B' of GBP170 million.
Additional interest of 10% per year is to be accrued on Tranche A and paid on repayment or expiry of Tranche A, and should this tranche not be repaid by the end of April next year, a further fee of GBP4.0 million is payable. An additional exit fee of up to GBP10 million is payable on repayment of Tranche A, which expires at the end of September next year. Tranche B expires at the end of March 2019.
Investec noted that whilst Cambian's debt issue is resolved for now, it is at a "high price."
"Cambian is a forced seller, with every month's delay costing at least GBP1m. Assuming the debt is cleared in 12 months implies total interest costs of GBP35m, versus FY15 EBITDA of GBP42.5m," Investec said.
Berenberg also noted the "significant price" of the debt deal, suggesting after Cambian breached its covenants for December, its bargaining position with its banks was likely weakened. Furthermore, Cambian will have to refinance about half of its outstanding debt by September 2017 at the latest.
Cambian is conducting a strategic review, with the board indicating the a sale of its Adult division is possible. Investec said it thinks this is the likely outcome, with comments from Cambian's chairman during its investor presentation leading it to believe the company has had firm interest from buyers recently.
Whilst the sale of the Adult division could raise sufficient funds to clear total debts, it would leave Cambian with an immature children's business, Investec said.
"We are pleased that Cambian's board is seeking to restructure the business so as to reduce debt and deliver shareholder value, which could be substantially higher than the current share price. However, this requires flawless execution from both an operational and strategic perspective. Given management's tarnished track record to this point, we continue to take a cautious view about the business," said Berenberg. Berenberg keeps its Hold rating with a price target of 60 pence.
"The lack of visibility on financial costs and uncertainty as to the outcome of the strategic review makes it very difficult to set forecasts or valuation with any confidence," Investec said. Whilst it can see the long term potential for Cambian, Investec said it "would avoid for now."
Barclay's assessment of Cambian's position was more dire, saying it is on its last option, with its results marking a break to the investment case. "Net-net, we concluded that Cambian can make its long-term investors whole, but sacrifice much in the process," Barclays said.
Shares in Cambian were up 0.5% at 68.07 pence Thursday afternoon.
By Hana Stewart-Smith; [email protected]; @HanaSSAllNews
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