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ProGroup - Rating houses see Capex weighing on FCF

  • To clarify our FV on ProGroup (Ba3 Stable, BB Neg) was pre-S&P's outlook revision to negative (left rating unch at BB) & Moody's revision down in outlook to Stable.
  • Capex assumptions from S&P were worryingly high (at €220m this year driving negative €150 FOCF) & Moody's is echoing that on expectation for "distinctly negative FCF" with "substantial" capex this year. Both see capex fading next year (maintenance capex for ProGroup is negligible).
  • Moody's has gross leverage peaking at 5.5* in 2H before falling to 4-4.5* next year (company is reporting gross at 4.7* post-issuance).
  • Positives regarding above are leverage targets from company are unch (at levels in line with BB ratings) and it has a history of deleveraging rapidly through the cycle (with ratings left unch through it).
  • Price talk implying final in the 5% handle looks like investors are looking for a discount on the risk it doesn't see a FCF boost/capex pull-back next year.

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