The Hili Group is engaged in multi-sited activities with McDonald's and Apple, logistics, marine and engineering, technology, oil and gas, property, hospitality and leasing. The group has a presence in 10 countries, with a team of 9,500 people.

In total, the group currently has five unsecured bonds in issue, three of which issued by its subsidiaries, with the remaining two issued by the group through Hili Finance Company plc, as a special purpose vehicle. The latter two bonds are guaranteed by Hili Ventures Ltd, which also acts as the holding company of the group.

The company’s second bond was issued in July 2019, whereby Hili Finance plc issued a 10-year €80m 3.8% unsecured bond. Out of this, €59m was earmarked to acquire Comino Hotel and Bungalows, €10m to part-finance the acquisition of new containers by Cobalt and €10m retained for potential group-wide investment opportunities.

In view of the wide-reaching impact of the COVID-19 pandemic, the majority of the group’s operations have been affected by the negative repercussions of this outbreak. More specifically to Premier Capital, all restaurants were either closed down due to strict restrictions or shifted their service to take away, McDrive and McDelivery. Additionally, iSpot retail stores in malls had to abide by closure protocols, while difficulties faced by third party tenants posed strains to rental income on investment property effecting Hili Properties.

In response to this unprecedented event, the group reported that all uncommitted investments and capital expenditure were put on hold, in addition to implementing several costs mitigating measures. Despite the significant impact of the pandemic, the group still expects to generate the same level of liquidity as originally planned and also expects to still operate at satisfactory profitability levels.

As per most recent Financial Analysis Summary (FAS), revenue generated from restaurant operations (70% of total revenue as at FY19) is anticipated to drop by 3.8% or €12.9m in FY20 due to the business lost following the outbreak.

Nonetheless, the group expects strong growth both from the ‘IT Solutions & Security’ (+47.8% or €8.1m) and ‘Logistics & Transport’ (+62.9% or €10.9m) operations. The former represents the revenue generated by Harvest Technology plc which to date has exceeded its IPO forecasts. The latter’s growth in revenue will be generated following the acquisition of STS Marine Solutions. Given the improved contribution of these two segments, the group’s overall revenue is expected to improve by 2.7% or €13.2m in FY20.

Notwithstanding the distressed economic environment and weaker fundamentals, the Hili Group still forecasts healthy profitability margins for FY20, with an EBITDA margin of 12.3% (FY19: 13.2%). In view of this, the group expects a positive interest coverage of 4.0x (FY19: 4.1x), with a leverage ratio of 6.6x (FY19: 5.7x).

Despite the adverse impact of the pandemic on the group’s operations, we are of the opinion that the Group’s cash reserves (FY19: €66.2m), coupled with the profitable performance projected for FY20 should ensure that the company will meet all of its financial commitments including the interest on its bonds.

We believe that Premier Capital remains a core operation for the group. The latter’s reliance on Premier might pose risks for the Group, however, we view that the strong franchise and regional operations are Premier’s key success in translating better margins within the restaurant segment. That said, we also acknowledge the fact that over the years management has pursued a strategy in sector diversification. Overall, we believe that the group is well-positioned despite setbacks brought about by COVIID-19.

This article was issued by Andrew Fenech, Research Analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.