Today, we are bringing you a quick analysis of the indebtedness and the capital structure of Croatian blue-chip companies that make up the CROBEX10 index, using the latest available Q1 2024 results.
With the publishing of all the Q1 2024 results for the Croatian companies behind us, we decided to look at how these results changed the indebtedness and capital structure of some of the largest Croatian blue chips. In order to do this, we looked at the net debt to EBITDA ratio, as well as the percentage of debt the companies use to finance their operations and investments. Also, we looked at how much additional debt the observed companies could take to reach 3x EBITDA. The 3x EBITDA level is usually considered the “upper” limit on how much debt could the companies take, without putting the operations at risk. Of course, this ratio might differ for different industries. This is usually considered when companies are making new investments, which is especially true in the case of M&As, for which higher debt levels are usually needed.
Looking at the Croatian blue chips, out of them several companies operate with a negative net debt. These include Adris, Span, Ericsson NT, Končar and Hrvatski Telekom. Negative net debt implies that a given company’s cash positions, which also include short-term financial assets combined with cash and cash equivalents, are enough to cover more than the entire financial debt. As such, their net debt to EBITDA is also negative, leading to the exclusion of these companies from this comparison. Lastly, it should be noted that all the numbers from the P&L (EBITDA in this case) are on the TTM basis ending in Q1 2024.
Net debt to EBITDA of select Croatian blue chips (TTM Q1 2024, points)
Source: Companies’ data, InterCapital Research
Out of the remaining companies, the largest net debt to EBITDA is observed by Arena Hospitality Group at 6.9x. This is due to the fact that significant investments were made into the Group’s portfolio in the last couple of years, which are still in the process of yielding returns, as is the nature of the industry, and its long-term focus. At the same time, cost pressures from higher food, energy, and wages due to inflation have led to higher costs, leading to pressure on the EBITDA. As such, we get a situation of higher debt levels, while profitability suffers, leading to this high number. Next up is Atlantska Plovidba, at 2.2x, which made some investments as well into new ship construction, leading to higher debt levels. At the same time, due to the nature of the shipping industry, which is usually volatile but has been even more so due to the global economic issues, the war in Ukraine and the conflict in Gaza, and also the shutdown of the Red Sea for shipping. All of these things presented both upsides and downsides; the upside would be the fact that shipping costs are higher overall, leading to better profitability for the company, but at the same time, uncertainty is also higher.
After them, we have Valamar Riviera, the largest hospitality company in Croatia, at 2.14x. The Group has been continually investing in its portfolio, aiming to expand but also add more higher-end offerings, leading to higher debt levels. On the other hand, Atlantic Grupa’s net debt to EBITDA stood at 1.99x, and it increased due to the recent purchases of the Eurocenter building where the Group’s headquarters are located, as well as the finalization of the Strauss Adriatic Acquisition. Finally, we have Podravka at 0.08x, a Company which deleveraged significantly in the last couple of years, while also continuing to invest and thus improving its profitability. This leaves ample room for acquisitions, of which the prime one for sure is Agrokor’s (Fortenova’s) agricultural business, more on which you can read here.
Potential additional debt (EURm) to reach 3x EBITDA
Source: Companies’ data, InterCapital Research
In terms of the potential additional debt that these companies could take to reach 3x EBITDA, Arena was excluded here as they already exceeded this number. For the remaining companies, HT takes the lead by far, with a possible EUR 1.6bn of additional debt until 3x EBITDA, and Adris follows at EUR 1bn. Next up, there is Končar at EUR 525m, Podravka at EUR 298.6m, Ericsson NT at 146m, Atlantic Grupa and Valamar Riviera, at EUR 92m and EUR 91.6m, respectively, as well as Span and Atlantska Plovidba, at EUR 32m and EUR 14.6m, respectively.
Capital structure of CROBEX10 constiutents (Q1 2024, % of the total funding)
Source: Companies’ data, InterCapital Research
Lastly, looking at the current capital structure of the CROBEX10 constituents, only Arena has >50% of its financing from debt. Of the remaining companies, HT’s operations are 100% financed with equity, followed by Podravka at 90.6%, Končar at 90%, Span at 89.6%, Adris at 87%, and Ericsson NT at 83.5%. On the other hand, Arena’s financing from equity amounts to 47.7%, followed by Valamar at 59.4%, Atlantska Plovidba at 62.4%, and Atlantic Grupa at 65.9%.
