Scope upgrades Masterplast ahead of HUF 9 bn BFG bond issue
Masterplast announced mid-July that it could issue further bonds up to HUF 9 billion under the BFG. This will be the company’s third bond issue under the central bank programme; the last time it raised HUF 6 bn in November 2020.
In preparation for the upcoming bond issue,
Scope Ratings today upgraded the issuer rating of Masterplast to BB- with stable outlook and confirmed its BB- bond rating.
This is one level above the minimum required by the National Bank of Hungary (MNB) for participation in its bond scheme, and is an upgrade compared to the previous two ratings issued.
The upgrade of the ratings is driven by Masterplast’s strong business performance in the last 18 months thanks to its broadened segmental setup (healthcare equipment) and a positive market environment (insulation materials) that will help to keep business afloat going forward.
More importantly, corresponding investments in production capacities have been heavily subsidised (40% to 80% of investment costs), maintaining credit metrics on track with gradual deleveraging, Scope said in its rating rationale.
The rating is also supported by the company’s high exposure to the maintenance end market as well its expansion into the healthcare industry, as both are less cyclical than the construction materials market, leading to more stable cash flows and less volatile margins. Profitability has improved on the back of expansion into the healthcare industry and is expected to stay at these new levels going forward.
Despite further strong revenue growth (+24% YoY), the rating is mainly constrained by the company’s small overall scale, which lessens its ability to benefit from economies of scale or to offset the impact of economic cycles. Diversification is seen as poor as Masterplast generates most of its revenues in one region (Europe) and is mainly exposed to one segment (construction materials). The rating is also limited by the continuous need for external financing to cover persistently negative free operating cash flow given the ongoing investment programme in production capacities and product availability, the statement said.
Sources: Scope, Masterplast
Masterplast has strong debt protection with Scope-adjusted EBITDA interest cover well over 10x in the last few years (last twelve months to end-March 2021: 23x). The company has benefitted from the low interest rate environment because almost one third of its debt is exposed to floating interest rates. This has helped to reduce the weighted average cost of debt to 1.9% as at end-June 2021, from 3.6% as at YE 2015. The upcoming HUF 9 bn bond issue should further enhance liquidity, with proceeds used to temporarily repay short-term financial liabilities, Scope said.
Masterplast shares have gained 140% this year. The company will post its Q2 flash report on Wednesday.
Cover photo: Masterplast
