Credit Update: Pioneer H1 2022 Results
IAM Capital Markets View
Pioneer has improved the funding/capital structure of the business and is in a good position for growth. Initiatives to improve the funding/capital structure included:
- AUD200m senior finance facility exp Nov-25
- Medium Term Notes increased to AUD59.5m exp Nov-26
- AUD5.4m equity raise at 60 cps, supported by Nomura, James Simpson, and MD Keith John
In terms of pricing for the bonds, Pioneer has some work to do, but the bonds are not at a stage yet where it would be considered distressed by any means. However, the business is such that a large part of this growth will occur over H2 2022 – a function of when the banks will let go of their PDP books.
There is a desire for banks to book into the current reporting season year, i.e., August/September 2022 and May/June 2022, and so there is generally a lull heading into Easter and the early part of the year. For these reasons, we’d urge bond investors to be patient as the green shoots are likely to come through in the latter half of this calendar year.
Positively, the AUD35m EBITDA forecast for H2 2022 will fund all forecast PDP investment. Furthermore, 97% of PDP investment guidance for FY22 has been completed or contracted. We note that the business has significant operating leverage, and so, a small increase in liquidations will provide a strong boost to the bottom line. Going forward, the results are also likely to be cleaner following the removal of significant one-off/non-recurring items which have been part and parcel of previous periods.
For bond investors, a key consideration is the value of the PDP book. Pioneer has a AUD1.5b WIP inventory portfolio that has been cautiously valued at AUD252m (or around 17% of total realisable value). This is both where the opportunity lies (i.e., potential upside on turnaround) but also an important input for bondholders’ recovery. Net assets currently sit at AUD58m (excluding non-cash amortisation charge to the portfolio).
Thus, we would need to see a 20% drop in the already cautiously valued PDP book (assuming no other company support measures are taken) to see a stress/default scenario emerge. It could happen, but is unlikely given the current economic environment, which would appear to provide a fruitful backdrop to launch.
Note, this is separate from the performing arrangements (PA) portfolio (>AUD400m), which provides a sustainable/growing recurring income stream. Expected liquidations contribution in CY22 of AUD58m from the PA book.
H1 2022 Results:
- Liquidations of AUD49m (up from AUD45m previous half)
- PDP Investment of AUD24m (up from AUD14m previous half)
- EBITDA of AUD25m (excluding non-cash amortisation charge to the portfolio)
- Net loss after taxation of AUD23m (includes significant one-off and non-recurring expenses, predominantly non-cash in nature)
- Cash/undrawn facilities of AUD40m
- Liquidations of >AUD105m
- PDP Investment of >AUD41m
- EBITDA of >AUD59m
- NPAT of >AUD1.5m