The Premier Group, through Premier Capital plc (Premier), issued an aggregate principal amount of €65m during FY16, having a nominal value of €100 each and bearing interest at the rate of 3.75 per cent per annum. These bonds are unsecured and redeemable at their nominal value in FY26.
The Group is principally engaged in the operation of the McDonald’s restaurants in Estonia, Greece, Latvia, Lithuania, Malta and Romania, whereby the Issuer acts as an investment company and service provider to its subsidiary undertakings.
More recently, the Group withdrew a €20m bond application, which proceeds were expected to be utilised in relation to the acquisition of the remaining 10 per cent minority shareholding in Premier Capital SRL (Romania) and for other capital expenditure purposes. However, as per recent announcements, the Group explained that such acquisition is expected to be financed through internally generated funds.
The current events stemming from the COVID-19 outbreak have had an impact on the Group during 2020 as all restaurants have either closed or reduced service to take away. Management explained that McDrive and McDelivery were required to operate only as restaurants and lobbies were ordered to close by local authorities to avoid contact between customers.
Management further explained that the FY20 results are expected to be impacted with adverse implications on the profitability of the Group. Each market was impacted differently, with the countries mostly impacted being those that rely heavily on the tourism sector. In the face of such an unprecedented pandemic, management also clarified that in order to safeguard its liquidity, the Group decided to reduce its capital expenditure plans to only committed and necessary expenditure, with non-essential capital expenditure put on hold until FY21.
Management teams also revised their respective market operating costs and retained only essential expenditure on the plans. Subsidiary companies benefitted from different government aids and assistance provided at local level intended to support hard hit businesses. More specifically, throughout the pandemic, management reported that the Baltic countries were the least impacted and were the first to register better results. In fact, for these countries, the Group is expected to nearly reach the same turnover levels of FY19. After being impacted severely during first months of the pandemic, management reported that Romania is recovering well and expectations are that the turnover level will reach circa 96 per cent of FY19.
Greece and Malta are expecting to still struggle to increase their volumes to pre-COVID levels as a result of the low tourism season as compared to other years. Nonetheless, the new stores which opened their doors in late 2019 in Greece, are expected to help this market to achieve close to last year’s turnover volumes, with FY20 revenue expected to decrease by one per cent over last year. On the other hand, Malta is expected to register a drop in sales of 12 per cent when compared to FY19. With the costs containments measures still in place and non-essential capital expenditure on hold, the Group is expected to register a net profit before tax of €15.7m compared to €28m in FY19.
From a credit sanity perspective, we believe that Premier is well positioned with very respectable leverage metrics, interest coverage, and more importantly the cash generation through operating activities.
Additionally, from a liquidity perspective, we believe the nature of the business per se is critical in having a lower receivable figure, while adjusting its liquidity needs accordingly. We view that Premier Capital holds a strong ability to service and sustain its debt. All in all, management confirmed that the reserves and financing available to the Group are adequate to support the Group in the foreseeable future.
Disclaimer: This article was written by Andrew Fenech, research analyst at Calamatta Cuschieri. The article is issued by Calamatta Cuschieri Investment Services Ltd which is licensed to conduct investment services business under the Investments Services Act by the MFSA and is also registered as a Tied Insurance Intermediary under the Insurance Distribution Act 2018. For more information visit https://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.