Obbligazioni societarie HIGH YIELD e oltre, verso frontiere inesplorate - Vol. 1
- Creatore Discussione TRADING_IDEAS
- Data di Inizio
- Stato
12.4% Yields, 3½ year Edcon Yankee Bonds, B/B3 rated, matures March 2018
edcon.png
Looking for a US dollar debt instrument that offers both extraordinarily high yields and great cash flow, has a short maturity certain date, AND has what appears to be reasonably acceptable risks? This week we think have found one of those rare opportunities for those that are so inclined. Couponed at 9.5% and trading at about 92 percent of face value, this 3½ year short maturity Yankee bond from South Africa’s leading (non-food) retailer Edcon is currently indicating a yield averaging about 12.4%. While this relatively unknown, B/B3 rated, and rather illiquid issue may prove to be more difficult to acquire than many other more familiar credit rated names, our unique knack for spotting and then being able to track down unusual instruments for our clients is regarded by some as being somewhat uncanny.
Edcon’s clothing and footware market share is almost twice that of its nearest competitor, and as of March 29, 2014 there were 1403 stores owned by Edcon operating under some of the most recognizable retail store chain brands in southern Africa. Total revenues continue to grow, and gross profit margins have exceeded 36% over the last 3 years. After considering its lower average gross debt position and 13.2% decrease in Edcon’s net financing costs, its reasonably consistent gross earnings and leveraged balance sheet, and what appears to be fairly sound execution of its strategic growth strategy, as explained further in this review, we see the over 12% yields of this reasonably short and high coupon bond bolstering both the cash flow and the overall average yields of our global high yield managed income portfolios, FX-1 and FX2.
A look at the issuer
Since the opening of its first Edgars store in 1929, Edcon has expanded its footprint to include over 1400 stores under nine different store formats (in 3 separate divisions) throughout southern Africa. A key initiative for the company is the Edgars transformation program, which includes refurbishment and store optimization, designed to deliver a refreshed, consistent, and compelling shopping experience, as well as better manage the ongoing electrical rate increases through the implementation of more efficient light and power solutions across the store grid. Through its network of stores, Edcon also sell other key products such as cellular phones and airtime, home ware and electronic equipment. In addition, it also owns an apparel manufacturing division that focuses on mid to high-end garments, as well as ladies’ and men’s outerwear for the Edgars and Discount divisions. Based in Johannesburg, the Company currently employs over 41,000 permanent and part time employees.
Acquired by Bain Capital in a leveraged $2.3 billion buyout and delisted from the Johannesburg Stock Exchange in 2007, earlier this year Edcon’s CEO Jurgen Schreiber dismissed the notion that it might soon relist on the JSE (so as to repay debt owed to bondholder) or that Bain Capital planned to sell the company. However, last month (August) Schrieber revealed that the company intends not only to bring in more International brands (such as Topshop and Tom Tailor) to help fend off local and foreign competition, and make improvements in profitability, but that Bain might indeed be planning an initial public offering of Edcon after the retailer reported multiple quarters of net profitability.
Edcon’s key strength include market-leading stores merchandise brands with diverse formats, customers and categories. Its strong financial services offering and loyalty program has significant economies of scale and an unrivalled footprint. Debt has been reduced as proceeds from the sale to Absa of the trade receivables book were used to unwind the securitization program as well as partly settle the 2014 maturities, but more importantly, future credit sales no longer require a cash investment (which previously was about 51%.) Subsequently, cash is received immediately on all credit sales. The improved cash flow will facilitate the acceleration of store refurbishment and the opening of new stores.
(in millions of Rand)
2012
2013
2014
Q1 2014
Q1 2015
Revenues
26,347
27,210
28,784
6,207
6,561
Gross Profit
9,229
9,431
9,842
2,412
2,458
Pro Forma (adj.) EBITDA
3,150
2,763
2,627
727
679
Net financing costs
3,716
3,144
2,628
613
838
Foreign exchange losses
690
2,005
1,855
Edcon manages its foreign exchange risk on liabilities on an ongoing basis. At the end of financial year 2014, 76% of the total gross debt was hedged by virtue of it either being denominated in ZAR or through hedging with foreign currency call options. The 24% unhedged portion relates only to the €425 million of fixed rate senior notes raised in November 2013 and maturing in 2019.
Capital expenditures for the 1st Quarter of 2015 decreased by R48 million, or 15.2%, to R267 million in the quarter. Forty-three new stores were opened, which combined with store refurbishments, resulted in investments in stores of R211 million, compared to the first quarter 2014 where Edcon opened thirty-eight new stores (excluding one conversion) resulting in an investment in store fixtures of R272 million. The company is still planning to spend approximately R1,051 million on capital expenditures in fiscal year 2015.
While the performance of stores outside of South Africa continue to deliver strong growth (up 17.6% year over year), group credit sales continued to decline in the quarter decreasing 3.3% and contributing only 46.5% of sales in the first quarter 2015 compared to 50.8% this time last year. Edcon continues to work to with banking entity Absa to ensure a competitive offering and identify new products for implementation in the current financial year. Despite a tough economic environment, it appears that Edcon has built a stable base for change and continued growth.
The attractiveness of higher yields
This five year $250 million Senior secured US dollar denominated debt of Edcon Limited, couponed at 9.5%, was issued in conjunction with a €317 million Euro denominated note (which was subsequently upsized by €100 million due to heavy demand), also couponed at 9.5% in February, 2013, with proceeds being used in part to retire earlier maturing debt. While this issue does appear to carry ostensibly higher risks that many of the high yield bonds that we have previously reviewed, Edcon’s retail operations are within a both a sector and a region of the global economy that we rarely find much opportunity. Furthermore, this issue also carries with it a certain degree of exchange rate risk with a currency that we currently have no exposure to within our global high yield portfolios. Consequently, we think its higher coupon and currently discounted price (indicating a yield that’s over 12%) is enticing in spite of its elevated risks, as it also introduces additional diversity to the income portfolios.
Risks Considerations
The default risk is Edcon’s ability to perform. Considering its reasonably stable trajectory and growth performance, it is our opinion that the default risk for this relatively short term bond is lower than its higher cash flow and return potential.
Macroeconomic factors such as interest rates, consumer indebtedness and employment levels affect consumer demand for Edcon’s goods. As the majority of Edcon’s sales are derived from South Africa, a general slowdown if South Aftrican GDP or an uncertain economic outlook may adversely affect consumer spending habits, which may in turn reduce retail sales. Higher interest rates, increased consumer indebtedness, a levelling off of social grants and lower consumer confidence could also have a material adverse effect on Edcon’s retail sales and the results of its operations.
A majority of the Companies revenue, as well as a significant portion of its costs and expenses, in rand. However, a significant portion of its products are purchased in markets outside of South Africa, principally in Asia,
and the cost of foreign-sourced products is affected by the fluctuation of the relevant local currency against the rand. Therefore, foreign currency fluctuations in the future may affect its profitability or its ability to service its foreign currency denominated indebtedness. As noted previously, Edcon endeavors to hedge this risk by managing its foreign exchange risk through the use of various derivatives.
Edcon operates within a highly competitive retail market, and is subject to certain execution risks commonly associated with continually opening new store and refurbishing existing stores.
We believe that these Edcon Limited Yankee bonds have slightly higher risks and similar maturities to other Yankees bonds such as the 9.58% Rolta, the 8.67% Eastcomtrans, or the 12% MNC Investama bonds that we have reviewed previously on our Bond-Yields.com blog.
Summary and Conclusion
It is our opinion that Edcon is well establish in its role as the leading retailor in South Africa, and continues to expand it footprint though the south African region. While we acknowledge that its balance sheet is more leveraged than we would prefer to see, it appears to be well enough managed to survive South Africa’s current tough economic environment. This bond offers excellent diversity, as well as a superior yield relative to the above noted risks. If or when the stalled economy of South Africa responds with more favorable growth and improved consumer confidence, we suspect that this particular retail issue is likely to respond rapidly. That said, we think these short 42 month, high cash flow, Yankee notes from Edcon Limited offer a unique opportunity for a very high yield that is about 12.4%, and excellent diversity within our Fixed-Income1.com and Fixed-Income2.com high yield global portfolios.
Issuer: Edcon Holdings (Proprietary) Limited
Coupon: 9.50%
Ratings: B/B3
Rank: Senior Secured
Maturity: 3/01/2018 (callable at par 2016 and thereafter)
Pays: Semi-annually
Price: 92.0
Yield to Maturity: ~12.42%
Disclosure: Durig Capital and certain clients may have positions in Edcon 2018 bonds.
Please note that all yield and price indications are shown from the time of our research. Our reports are never an offer to buy or sell any security. We are not a broker/dealer, and reports are intended for distribution to our clients. As a result of our institutional association, we frequently obtain better yield/price executions for our clients than is initially indicated in our reports. We welcome inquiries from other advisors that may also be interested in our work and the possibilities of achieving higher yields for retail clients.
edcon.png
Looking for a US dollar debt instrument that offers both extraordinarily high yields and great cash flow, has a short maturity certain date, AND has what appears to be reasonably acceptable risks? This week we think have found one of those rare opportunities for those that are so inclined. Couponed at 9.5% and trading at about 92 percent of face value, this 3½ year short maturity Yankee bond from South Africa’s leading (non-food) retailer Edcon is currently indicating a yield averaging about 12.4%. While this relatively unknown, B/B3 rated, and rather illiquid issue may prove to be more difficult to acquire than many other more familiar credit rated names, our unique knack for spotting and then being able to track down unusual instruments for our clients is regarded by some as being somewhat uncanny.
Edcon’s clothing and footware market share is almost twice that of its nearest competitor, and as of March 29, 2014 there were 1403 stores owned by Edcon operating under some of the most recognizable retail store chain brands in southern Africa. Total revenues continue to grow, and gross profit margins have exceeded 36% over the last 3 years. After considering its lower average gross debt position and 13.2% decrease in Edcon’s net financing costs, its reasonably consistent gross earnings and leveraged balance sheet, and what appears to be fairly sound execution of its strategic growth strategy, as explained further in this review, we see the over 12% yields of this reasonably short and high coupon bond bolstering both the cash flow and the overall average yields of our global high yield managed income portfolios, FX-1 and FX2.
A look at the issuer
Since the opening of its first Edgars store in 1929, Edcon has expanded its footprint to include over 1400 stores under nine different store formats (in 3 separate divisions) throughout southern Africa. A key initiative for the company is the Edgars transformation program, which includes refurbishment and store optimization, designed to deliver a refreshed, consistent, and compelling shopping experience, as well as better manage the ongoing electrical rate increases through the implementation of more efficient light and power solutions across the store grid. Through its network of stores, Edcon also sell other key products such as cellular phones and airtime, home ware and electronic equipment. In addition, it also owns an apparel manufacturing division that focuses on mid to high-end garments, as well as ladies’ and men’s outerwear for the Edgars and Discount divisions. Based in Johannesburg, the Company currently employs over 41,000 permanent and part time employees.
Acquired by Bain Capital in a leveraged $2.3 billion buyout and delisted from the Johannesburg Stock Exchange in 2007, earlier this year Edcon’s CEO Jurgen Schreiber dismissed the notion that it might soon relist on the JSE (so as to repay debt owed to bondholder) or that Bain Capital planned to sell the company. However, last month (August) Schrieber revealed that the company intends not only to bring in more International brands (such as Topshop and Tom Tailor) to help fend off local and foreign competition, and make improvements in profitability, but that Bain might indeed be planning an initial public offering of Edcon after the retailer reported multiple quarters of net profitability.
Edcon’s key strength include market-leading stores merchandise brands with diverse formats, customers and categories. Its strong financial services offering and loyalty program has significant economies of scale and an unrivalled footprint. Debt has been reduced as proceeds from the sale to Absa of the trade receivables book were used to unwind the securitization program as well as partly settle the 2014 maturities, but more importantly, future credit sales no longer require a cash investment (which previously was about 51%.) Subsequently, cash is received immediately on all credit sales. The improved cash flow will facilitate the acceleration of store refurbishment and the opening of new stores.
(in millions of Rand)
2012
2013
2014
Q1 2014
Q1 2015
Revenues
26,347
27,210
28,784
6,207
6,561
Gross Profit
9,229
9,431
9,842
2,412
2,458
Pro Forma (adj.) EBITDA
3,150
2,763
2,627
727
679
Net financing costs
3,716
3,144
2,628
613
838
Foreign exchange losses
690
2,005
1,855
Edcon manages its foreign exchange risk on liabilities on an ongoing basis. At the end of financial year 2014, 76% of the total gross debt was hedged by virtue of it either being denominated in ZAR or through hedging with foreign currency call options. The 24% unhedged portion relates only to the €425 million of fixed rate senior notes raised in November 2013 and maturing in 2019.
Capital expenditures for the 1st Quarter of 2015 decreased by R48 million, or 15.2%, to R267 million in the quarter. Forty-three new stores were opened, which combined with store refurbishments, resulted in investments in stores of R211 million, compared to the first quarter 2014 where Edcon opened thirty-eight new stores (excluding one conversion) resulting in an investment in store fixtures of R272 million. The company is still planning to spend approximately R1,051 million on capital expenditures in fiscal year 2015.
While the performance of stores outside of South Africa continue to deliver strong growth (up 17.6% year over year), group credit sales continued to decline in the quarter decreasing 3.3% and contributing only 46.5% of sales in the first quarter 2015 compared to 50.8% this time last year. Edcon continues to work to with banking entity Absa to ensure a competitive offering and identify new products for implementation in the current financial year. Despite a tough economic environment, it appears that Edcon has built a stable base for change and continued growth.
The attractiveness of higher yields
This five year $250 million Senior secured US dollar denominated debt of Edcon Limited, couponed at 9.5%, was issued in conjunction with a €317 million Euro denominated note (which was subsequently upsized by €100 million due to heavy demand), also couponed at 9.5% in February, 2013, with proceeds being used in part to retire earlier maturing debt. While this issue does appear to carry ostensibly higher risks that many of the high yield bonds that we have previously reviewed, Edcon’s retail operations are within a both a sector and a region of the global economy that we rarely find much opportunity. Furthermore, this issue also carries with it a certain degree of exchange rate risk with a currency that we currently have no exposure to within our global high yield portfolios. Consequently, we think its higher coupon and currently discounted price (indicating a yield that’s over 12%) is enticing in spite of its elevated risks, as it also introduces additional diversity to the income portfolios.
Risks Considerations
The default risk is Edcon’s ability to perform. Considering its reasonably stable trajectory and growth performance, it is our opinion that the default risk for this relatively short term bond is lower than its higher cash flow and return potential.
Macroeconomic factors such as interest rates, consumer indebtedness and employment levels affect consumer demand for Edcon’s goods. As the majority of Edcon’s sales are derived from South Africa, a general slowdown if South Aftrican GDP or an uncertain economic outlook may adversely affect consumer spending habits, which may in turn reduce retail sales. Higher interest rates, increased consumer indebtedness, a levelling off of social grants and lower consumer confidence could also have a material adverse effect on Edcon’s retail sales and the results of its operations.
A majority of the Companies revenue, as well as a significant portion of its costs and expenses, in rand. However, a significant portion of its products are purchased in markets outside of South Africa, principally in Asia,
and the cost of foreign-sourced products is affected by the fluctuation of the relevant local currency against the rand. Therefore, foreign currency fluctuations in the future may affect its profitability or its ability to service its foreign currency denominated indebtedness. As noted previously, Edcon endeavors to hedge this risk by managing its foreign exchange risk through the use of various derivatives.
Edcon operates within a highly competitive retail market, and is subject to certain execution risks commonly associated with continually opening new store and refurbishing existing stores.
We believe that these Edcon Limited Yankee bonds have slightly higher risks and similar maturities to other Yankees bonds such as the 9.58% Rolta, the 8.67% Eastcomtrans, or the 12% MNC Investama bonds that we have reviewed previously on our Bond-Yields.com blog.
Summary and Conclusion
It is our opinion that Edcon is well establish in its role as the leading retailor in South Africa, and continues to expand it footprint though the south African region. While we acknowledge that its balance sheet is more leveraged than we would prefer to see, it appears to be well enough managed to survive South Africa’s current tough economic environment. This bond offers excellent diversity, as well as a superior yield relative to the above noted risks. If or when the stalled economy of South Africa responds with more favorable growth and improved consumer confidence, we suspect that this particular retail issue is likely to respond rapidly. That said, we think these short 42 month, high cash flow, Yankee notes from Edcon Limited offer a unique opportunity for a very high yield that is about 12.4%, and excellent diversity within our Fixed-Income1.com and Fixed-Income2.com high yield global portfolios.
Issuer: Edcon Holdings (Proprietary) Limited
Coupon: 9.50%
Ratings: B/B3
Rank: Senior Secured
Maturity: 3/01/2018 (callable at par 2016 and thereafter)
Pays: Semi-annually
Price: 92.0
Yield to Maturity: ~12.42%
Disclosure: Durig Capital and certain clients may have positions in Edcon 2018 bonds.
Please note that all yield and price indications are shown from the time of our research. Our reports are never an offer to buy or sell any security. We are not a broker/dealer, and reports are intended for distribution to our clients. As a result of our institutional association, we frequently obtain better yield/price executions for our clients than is initially indicated in our reports. We welcome inquiries from other advisors that may also be interested in our work and the possibilities of achieving higher yields for retail clients.
CEDOLONE
Forumer storico
Saputo solo oggi che il gruppo Edcon non ha un solo negozio di proprieta'...
Tutti in affitto .....
E l'affitto costa.....
Specialmente quando la sua banca di riferimento blocca il credito al consumo
......e non x colpa di Edcon.....
Tempi duri x loro ma io sono positivo .....x il momento ancora HOLD
arkymede74
Forumer storico
scusa ma allora chi è quel fesso che non aderisce... ? ...
appunto. ed io voglio essere un super fessacchione!!!!
fabriziof
Forumer storico
gennaro pinto
VictoriaConcordiaCrescit
fedro10
è la somma che fa il totale...
Ma allora cosa dice L'articolo sopra???? :
Quota di abbigliamento e calzature di mercato di Edcon è quasi doppio di quello del suo concorrente più vicino, e come del 29 marzo 2014 ci sono stati 1.403 negozi di proprietà Edcon che operano in alcuni dei marchi della catena di vendita al dettaglio più riconoscibili in Africa australe.
Ultima modifica:
070162
Bond..... solo BOND
a propostito di Papelero ragà.... ho un dubbio...... e vorrei il Vs contributo....se non aderiamo e l'operazione và in porto ne rimarranno in circolazione una quantità piccola (al max quante non lo so)
quindi l'obbligazione potrebbe diventare illiquida.......
ora se il quadro macro cambia.... e i tassi aumentano (con le obbl giù)...... e diciamo tra 2 anni il dollaro comincia a ridiscendere......
e quindi noi vogliamo vendere ........potremmo rimanere inchiappettati
.... o NO....aspetto le Vs gentili considerazioni...... (perchè potrei aver ampiamente cannato)
@ Brizio.... gentilmente rispondi anche tu... visto che hai aderito...
lo stesso dicasi per Gion.... che NON ha aderito.......
070162
Bond..... solo BOND
arkymede74
Forumer storico
se non aderiamo e l'operazione và in porto ne rimarranno in circolazione una quantità piccola (al max quante non lo so)
quindi l'obbligazione potrebbe diventare illiquida.......
ora se il quadro macro cambia.... e i tassi aumentano (con le obbl giù)...... e diciamo tra 2 anni il dollaro comincia a ridiscendere......
e quindi noi vogliamo vendere ........potremmo rimanere inchiappettati
aspetto le Vs gentili considerazioni...... (perchè potrei aver ampiamente cannato)
@ Brizio.... gentilmente rispondi anche tu... visto che hai aderito...
lo stesso dicasi per Gion.... che NON ha aderito.......
io non sono ne Brizio..ne Gion... posos risponder eugualmente, gentile collega Ing. ??
secondo me è spiccicato come hai scritto tu.....
- Stato
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HIGH YIELD e oltre, verso frontiere inesplorate, vol.3
