Nampak reported an excellent set of interim results for the period ended March 31 2021. All 3 of their divisions were comfortably profitable and cash flow positive.
Nigeria performed particularly well, with the company able to repatriate a material amount of cash (R848m) from Nigeria and Angola, which helped them pay down debt.
Total company debt was reduced to R5.8bn from R8.5bn over the period. Nampak managed to comply with all group funding covenants over the two quarterly measurement periods. Net debt/EBITDA was 3.72x as at 31 March 2021, remaining below the 5.25x maximum threshold. This is an improvement from 4.48x as at 31 December 2020. EBITDA/interest cover came in at 3.08x as at 31 March 2021. This exceeded the required 2.25x minimum cover and was also an improvement on 31 December 2020’s figure of 2.62x.
Nampak stated that the next 6 months are expected to be very strong. One major potential issue is in the below comments with regards to their debt profile. This is something the market is certainly concerned about and is likely the reason for the recent fall in the share price:
"The group’s debt funders require a R1 billion reduction of interest-bearing debt by 30 September 2021, through strategic asset disposals or a combination of asset disposals and a capital raise. During the de-gearing process, set milestones needed to be reached. Nampak has met all agreed milestones to date. The milestone requirement for binding offers amounting to R1 billion by 31 March 2021 was reduced to R400 million, as a significant asset had to be withdrawn from the disposal process after the licensor critical to the business objected to the potential transaction. Based on improved operating results and progress made in our disposal process to date, the lenders have agreed to reassess the group’s position at 30 June 2021. This will allow the lenders to determine whether the repayment of R1 billion as at 30 September 2021 can be reduced and/or whether there will be a requirement for a potential capital raise."
Using their recent results as a base, Nampak should be able to comfortably generate in excess of R300m in free cash flow for this financial year (potentially a lot more). My view is that they will be able to extend the R1bn debt cut-off deadline for another 6-12 months. This would mean that the chance of the dreaded rights issue may be lower than the market is currently pricing in. Assuming there isn’t a rights issue, there is significant upside from these levels of around R2.50.