Hili Ventures ltd is the holding company of a diversified group of companies, with the main subsidiaries being; Premier Capital plc, 1923 Investments plc, Hili Properties plc, Cobalt, HV Hospitality and HV Marine.
The Group currently has five unsecured bonds in issue three of which issued by its subsidiaries at operating company level and the remaining two issued by the Group through Hili Finance, as a special purpose vehicle. Last week, the Group announced its financial performance for 2019.
Premier Capital plc
Premier Capital operates under the McDonald’s franchise and operates a growing network of restaurants, currently standing at 156 outlets. Premier intends to geographically expand further in territories other than its current presence in Estonia, Greece, Latvia, Lithuania, Romania and Malta.
Premier remained a very strong contributor to the Group during FY19, with revenue increasing by 16.2 per cent to €341.3 million (FY18: €293.6 million) and EBITDA increasing by 46.3 per cent to €56.2 million (FY18: €38.4 million). The increase in EBITDA is partial due to the adoption of IFRS 16, which resulted in the deduction of circa €14 million in operating leases expense and the recognition of €90 million in lease liability.
The current pandemic has led to the temporary closure of some restaurants, while other restaurants are operating with limitations, nonetheless still serving customers with take away, McDrive and McDelivery where possible. Although it is premature to quantify the impact on Premier, management noted that cost containment measures have been put in place, all capex is on hold and also indicated a potential right-sizing of the staff should the situation deteriorate further.
Hili Properties plc
Hili Properties is the real estate arm of the Group. It owns and manages a diverse portfolio of commercial property in Malta, Latvia, Lithuania, Estonia and Romania, with an aggregate value close to €120m. Hili Properties reported a growth in revenue of 20.0 per cent to €8.7 million in FY19 (FY18: €7.3 million). This translated to an increase in EBITDA of 14.2 per cent to €6.2 million (FY18: €5.4 million).
This growth was mainly achieved as a result of the additional revenue generated from the business acquired in the Baltics in December 2018, coupled with the revenue generated from the properties in operation in Romania, which started generating rental income in 2019.
The negative repercussions of the current outbreak led to the temporary closure of some properties and the suspension of all CAPEX plans. The company has put in place cost containment measures and reassured bondholders that it shall settle in full the interest due for this year.
1923 Investments plc
1923 Investments is the investment arm of the Group. It has a diversified portfolio spread across three segments: retail (Apple resellers), logistics and technology. The company recently announced that it has finalised the transaction with Teekay Tankers Ltd to acquire a portion of its oil and gas ship-to-ship services for $26 million. 1923’s revenue increase to €134.9 million in FY19 (FY18: €122.0 million), representing a growth of 10.6 per cent.
The company reported an EBITDA of €11.2 million, however when excluding the impact of IFRS 16 the EBITDA generated was of €3.8 million (FY18: €3.8 million), representing a growth of 2.8 per cent. As a result of this outbreak and the subsequent containment measures put in place worldwide, the majority of Apple Premium Resellers operating under the iSpot brand have ceased in-store operations and customers are being directed to the iSpot’s website.
Hili Ventures Ltd
As of the time of this writing, the consolidated financial statements of Hili Ventures were not yet made available. However, it is worth noting that the operations of Premier Capital represented 69 per cent of the Group’s revenue in 2018, with the sale of Apple products (carried out by 1923 Investments) representing 21 per cent.
Furthermore during 2018, 90 per cent of the Group’s EBITDA totalling to €42.9m was derived from Premier. Given the strong performance registered by Premier during 2019, it is expected that Premier will remain a strong contributor to the Group.
Debt securities in issue
As at Tuesday's closing prices, the yield to maturity (YTM) of the Group’s bonds was; 1923 Investments (YTM: 5.5 per cent), Hili Properties (YTM: 4.7 per cent), Premier Capital (YTM: 3.7 per cent), Hili Finance 2028 (YTM 5.1 per cent) and 2029 (YTM 4.5 per cent).
Notwithstanding the impact of the virus and its repercussions as discussed above, it is important for investors to keep in mind that Hili Group consists of more than one issuer and thus the impact of the Coronavirus will not be the same for all Group companies.
Premier has accumulated a healthy amount of liquidity and stands to benefit from consumers’ preference for cheap fast food meals within the current stressed economic environment. Although the Group is dependent on other subsidiaries, investors should be comforted by the fact that Premier Capital has a high contribution to the Group’s performance, which could act as a powerful catalyst for the recoverability of the Group’s financial position post this outbreak.
Both Hili Properties and 1923 Investments have weaker profitability and credit metrics when compared to the other issuers within the Group. Additionally, both companies have a high exposure to leverage, which might hinder their recoverability post this pandemic.
Premier Capital and Hili Finance are trading at a lower YTM to the other Group subsidiaries, reflecting their stronger credit metrics when compared to Hili Properties and 1923 Investments. It is pertinent to note that during turbulent times, as currently being experienced due to this pandemic, investors should stick to issuers who have a strong balance sheet and the ability to recover post COVID-19.
Disclaimer: This article was issued by Rowen Bonello, 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.