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DCC Group (DCCLN NR/BBB/BBB): New Issue FV Analysis

CREDIT SUPPLY
  • Predominantly an energy (solutions plus mobility) business, pass through pricing so no direct exposure to commodity prices.
  • 74% of the profit from energy segment, of which 35% and growing comes from renewables. Margins have been quite stable suggesting the transition isn’t hurting profitability.
  • Low EBITDA margin business (4.6%).
  • Roadshow presents leverage as 0.9x; lease adjusted is 1.4x, however. Committed to IG rating.
  • £1.1bn in cash, £800mn RCF for total liquidity of £1.9bn. Debt including leases is £2.2bn.
  • FCF / Net Debt at 48%, with historically good cash flow conversion.
  • Historically active in bolt-on acquisitions with a good track record.
  • ATDBCN 3.647 05/31 (Baa1/BBB+) trades at Z+90. If we apply a 30bp discount conservatively for one notch, FV is 120bp area. The main negative is the low margins but looks like a reasonable credit overall.
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