Pioneer reported 1H23 results today which pleasingly illustrate the company’s turnaround story is starting to take shape.
We can’t argue that the current outlook is supportive for Pioneer. With macro-economic pressure driving supply, balanced against a fully employed population with capacity to service their financial commitments, less competition and a vendor preference for Pioneer, the company should be able to meet strategic and financial targets. The key will be the focus on reducing leverage over time to the low 60%’s through cash collections performance and cost management. So – still a lot to do from its current base. If achieved, then the company should be able to refinance senior debt facilities and MTNs when falling due.
With the bonds offering a running yield of high double-digits this bond is not for the faint-hearted and is pricing at distressed levels. While one positive half of results doesn’t mean the credit is out of the headlights – bond investors can now take some comfort the numbers coming through show “actual” financial improvement rather than just “headline” statements.
Key financial metrics:
- Cash collections (or liquidations) up 40% pcp to A$68m
- EBITDA up 80% pcp to A$45.2m
- EBIT up 436% pcp to A$13.1m
- NPAT up 94% pcp to (A$1.3m)
- PDP (or purchased debt portfolio) investment up 79% pcp to A$42.4m
Translated into a FY EBITDA of A$90m (extrapolated) starts to make the investment scenario for Pioneer look increasingly attractive. What was once a 6x leveraged company transformed into a 3x leveraged vehicle shifts the dial in terms of refinancing/interest costs. However, EBITDA is very sensitive to cash collections and expenses, so extrapolation may not be the best way to normalise
Source: Pioneer Investor Pack Feb 2023
The balance sheet remains somewhat stretched. By our calculations, leverage at 1H23 sits at 84%. We do, however, expect a reduction in leverage in FY23 as the company moves into a free cash flow (FCF) position. PDP assets of A$308.1m are carried on balance sheet at amortised cost. This reflects the present value of estimated remaining collections (ERC) of A$586m. There is an argument that PDP assets are very conservatively measured from a recovery perspective – i.e., around 50% of ERC
Source: Pioneer Investor Pack Feb 2023
We would note there is significant level of board and management ownership which does create the right incentives.
Source: Pioneer Investor Pack Feb 2023
Source: Bloomberg
