• 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offers   amounting to R1 billion by 31 March 2021 was reduced to R400 million, as a significant   asset had to be withdrawn from the disposal process after the licensor   critical to the business objected to the potential transaction.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.