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Research: Financials
On 26 March, MyBucks (MBC) announced a recapitalisation proposal aimed at strengthening its balance sheet, which is urgently required given the current high level of gearing and negative equity at the parent entity level. The recapitalisation will be entirely non-cash and MBC will require bridge financing until it issues new shares against cash. Simultaneously, Dave van Niekerk agreed to retire from the CEO position and was replaced by Timothy Nuy, MBC’s former CEO. In response to the release, MBC’s share price suffered considerable losses (currently at €1.22 vs €3.56 at close on 25 March).
MyBucks |
Entering a restructuring phase
Financials |
Scale research report - Flash
2 April 2019 |
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Bear
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On 26 March, MyBucks (MBC) announced a recapitalisation proposal aimed at strengthening its balance sheet, which is urgently required given the current high level of gearing and negative equity at the parent entity level. The recapitalisation will be entirely non-cash and MBC will require bridge financing until it issues new shares against cash. Simultaneously, Dave van Niekerk agreed to retire from the CEO position and was replaced by Timothy Nuy, MBC’s former CEO. In response to the release, MBC’s share price suffered considerable losses (currently at €1.22 vs €3.56 at close on 25 March).
MBC intends to undertake a c €45m recapitalisation, which will include: 1) conversion of c €27.8m loans from Ecsponent (one of its main shareholders) to equity at a price of €1.00; 2) contribution of a €6m loan book in Botswana by MHMK Group (a sub-Saharan private equity firm) against the issue of 6m of MBC’s shares; and 3) contribution of €11m outstanding promissory notes issued by MBC to an undisclosed family office against the issue of 11m shares. Our previous update note discussed MBC’s funding situation and the need for balance sheet restructuring in detail. However, we believe the low conversion/issue price of €1.00, as well as the resulting strong dilutive impact (share count potentially increasing from 12.7m to c 57.6m) were major negative stock catalysts. Furthermore, the fact that MBC was not able to obtain the requisite approvals for the private placement announced in December 2018 constitutes another negative factor. The failure to secure additional equity funding in recent months forced MBC to pursue this recapitalisation programme.
According to our estimates, the above measures will result in Ecsponent becoming a majority shareholder (ie holding a >50% stake in MBC). Having said that, the company is in discussions with additional shareholders to conduct further debt conversions and capital increases. Moreover, the recapitalisation should be followed by a capital increase structured as a rights offering, with five shares offered for every share held by current shareholders. Given that Ecsponent has agreed to waive its subscription rights for the purpose of this offering, this could allow minority shareholders to partially mitigate the dilutive impact of the recapitalisation (and bring Ecsponent’s stake below 50% again). Successful related party debt to equity conversions should reduce MBC’s interest expense, which is particularly important given the high cost of this mezzanine-like source of funding.
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Consensus estimates
Source: MyBucks accounts. Note: *From continuing operations. |
Edison Investment Research provides qualitative research coverage on companies in the Deutsche Börse Scale segment in accordance with section 36 subsection 3 of the General Terms and Conditions of Deutsche Börse AG for the Regulated Unofficial Market (Freiverkehr) on Frankfurter Wertpapierbörse (as of 1 March 2017). Two to three research reports will be produced per year. Research reports do not contain Edison analyst financial forecasts.
Recapitalisation in detail
It is worth highlighting that part of the recapitalisation initiative is subject to regulatory approvals in South Africa, as well as shareholder approval at the EGM, which will take place in the second quarter of 2019.
The c €45m recapitalisation is likely to cure MBC’s covenant breaches by reducing the gearing ratio and allowing its equity at parent level to return to positive territory. MBC’s equity attributable to shareholders of the parent stood at a negative €2.6m at end-December 2018 and should decline further due to the recent devaluation of Zimbabwean currency, which will affect the exchange rate conversion on consolidation of MBC’s subsidiary (we estimate that the negative impact might have been in the mid- to upper single-digit millions). Additional headwinds are expected from the recent cyclone in Mozambique, which has affected MBC’s agricultural loan book.
However, it is important to note that the recapitalisation is entirely non-cash and thus does not resolve MBC’s future funding needs given that the company still generates negative operating cash flow (at €10.6m in H119 and €25.1m in FY18, compared with cash and cash equivalents at end-December 2018 of €18.1m). Moreover, based on our discussion with the new CEO, we understand that the subsequent capital increase with rights issue may be conducted late in the second half of 2019. Consequently, we believe MBC is likely to seek some form of bridge financing to secure its liquidity position in the short term.
In our opinion, the return of Timothy Nuy and the departure of founder Dave van Niekerk (who also resigned from the executive chairman position) may be accompanied by a shift in MBC’s strategy away from further extensive investments in its technological platform aimed at the development of the product and technology outsourcing business. The focus going forward should be on strengthening MBC’s position as a digital bank, right-sizing the business and improving the cash flow. Consequently, MBC should now be considered a company in a transitional/restructuring phase.
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Research: TMT
As indicated at January’s trading update, YouGov had a strong H119. 18% revenue growth (10% underlying) blends +34% from Products & Services with +4% from Custom. More notable, though, is the step up in adjusted operating margin from 16% in H118 to 19% as the syndicated data model starts to show its value. Management has outlined ambitious new, five-year targets; looking to double group revenue and operating margin and achieve a CAGR of over 30% for EPS. With the continuing investment requirement, we expect stronger progress towards these targets in the second half of the period. Nevertheless, they underpin the valuation.
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