Focus on Prysmian after convertible and buyback announcement

(Il Sole 24 Ore Radiocor) - After a bullish start (+1.3%), Prysmian falls back to the negative at EUR 57.74, with the day's high touched at EUR 59.46. On Friday 7 June, after trading hours, the group announced that it had approved the exercise of the early redemption right on the entire aggregate amount of the EUR 750m convertible bond maturing in 2026 issued in February 2021. The redemption date of the bond will be 19 July 2024. Bondholders will then be able to exercise their conversion rights instead of receiving a redemption amount for their bonds, following the exercise of the soft call.

The Board of Directors also approved the launch of a share buy-back programme: the programme, which will be implemented as of today, 10 June and will last until 10 March 2025, concerns a maximum total of 8 million shares (corresponding to approximately 3% of the share capital) and a maximum countervalue of EUR 375 million. As of today's date, the total number of treasury shares in portfolio amounts to 3,638,191, or 1.3% of the share capital.

Analysts at Banca Akros believe that the exercise of the early redemption of the bond "should significantly strengthen Prysmian's capital structure, as the full conversion of the EUR 750 million convertible bond into equity is expected". As for the share buy-back programme, for traders, 'it underlines the company's confidence in the value of its capital and confidence in its financial outlook and future results'. For Equita's analysts, the soft call transaction also 'strengthens Prysmian's capital structure': the cfo, traders point out, said he expects the conversion of the entire 750 million bond, with a strike of 40.6 per share, ensuring 'greater financial flexibility after the acquisition of Encore announced last April'.

The launch of the buyback, on the other hand, 'demonstrates management's confidence in the value of the stock and its prospects, and provides support for the stock, compensating for the dilutive impact from the conversion of the convertible loan'. However, notes Equita, while the share buyback is 'clearly positive news' (the weight on current market capitalisation is around 2.4%), the exercise of the soft call means that the new shares will be placed on the market, and this is 'negative news for the margin'. The weight of the bond (at 100%) is about 4.8% of the current market capitalisation. At the end of the first quarter of 2024, Prysmian had a net financial position of EUR -1.69 billion. Equita analysts estimate about -600 million at year-end, with adjusted ebitda of 0.4 times.

The pro-forma net financial position 2023 post-acquisition of Encore Wire will be about -5.1 billion, corresponding to an adjusted net debt/ebitda multiple of 2.4 times, while it was expected to return to leverage similar to the December 2023 level (0.7x) by 2027. With the full conversion of the convertible loan, the experts write, the pro-forma net financial position at the end of 2023 falls to -€4.3bn or an adjusted net debt/ebitda of 2.1x and 0.3x at 2027. Assuming full conversion of the bond and buy-back of the maximum amount, the adjusted price earning at 2025 pro-forma increases from 14 times (with nd/ebitda of 1.6 times) to 14.6 times with nd/ebitda of 1.4 times. Equita has a hold rating on Prysman with a target price of €55, while Akros recommends a buy rating with a target price of €62.5.