Indebtedness of CROBEX10 Constituents – Q1 2023 Results

Today, we are bringing you a quick analysis of the indebtedness and the capital structure of Croatian blue chip companies which make up the CROBEX10 index, using the newest Q1 2023 results.

With the publishing of all the Q1 2023 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. Furthermore, we looked at how much additional debt the observed companies could take to reach 3x EBITDA. The 3x EBITDA mark is usually considered an “upper” limit of how much debt the companies could take, without putting their operations at risk with the repayment of said debt. This upper limit is usually considered when a company makes new investments, especially in the case of M&As.

Of all the Croatian blue chips, Adris, Span, Končar, Ericsson NT, and Hrvatski Telekom operate with a negative net debt. This means that their current cash positions (which include short-term financial assets combined with cash and cash equivalents) are more than enough to cover their entire financial debt. Consequently, their net debt to EBITDA ratio would also be negative. Because of this, these companies were excluded from the net debt to EBITDA comparison. Finally, the EBITDA data is based on the trailing twelve months (TTM) results, which include the latest quarter, as this is the only way to show full-year data. This is done because components of the balance sheet (like in this case, debt) always reflect their numbers on a certain date, while components of the P&L reflect only financial data for a select period (as mentioned, Q1 2023).

Net debt to EBITDA of Croatian blue chip companies

Source: Companies’ data, InterCapital Research

Out of the remaining 5 companies, the largest indebtedness goes to Arena Hospitality Group with 6.3x. Arena Hospitality Group is followed by Valamar with 2.9x, Atlantska Plovidba with 2.1x, Atlantic Grupa with 1.5x and Podravka with the lowest KPI of 0.1x. The remaining companies have net debt to EBITDA of less than 1. Regarding Arena Hospitality Group, the Company continues its investment cycle. At the same time, profitability is under threat due to high inflation rates and cost growth, which means that indebtedness is kept at similar levels to the previous year. Valamar Riviera is also in a similar boat in terms of investments requiring higher levels of debt. The remaining companies retain pretty low levels of indebtedness, which considering that the current macroeconomic situation makes taking new debt significantly more expensive, makes sense. Končar is relatively the only “new” addition to this, as they increased investments during the second half of 2022 and as such, took more debt (as compared to 2021, when their net debt was negative). We note Končar, besides the consolidation of Dalekovod, also took part in a few small-scale M&A projects during the year. Further, AD Plastik is excluded from this analysis as the company was recently excluded from CROBEX10 composition, which was our benchmark. However, we emphasize that AD Plastik was substituted with Span which currently has negative net debt.

Potential additional debt (EUR) to reach 3x EBITDA

Source: Companies’ data, InterCapital Research

Taking a look at how much new debt these companies could take to reach 3x EBITDA, Arena Hospitality was excluded as they already are over this number. Of the remaining companies, HT could by far take the most, at EUR 1.67bn, followed by Adris with EUR 565.5m, Podravka with EUR 290.5m, Končar with EUR 219.3m, Ericsson NT with EUR 129.9m, Atlantic Grupa with EUR 110.6m, Span at EUR 42m, Atlantska Plovidba with EUR 28.9m and finally, Valamar with EUR 12.3m. This would mean that in case these companies see any potential for further expansion or even a need to finance their operations, they could take on significant amounts of debt. Of course, as mentioned, new debt is more expensive now than it was a year ago, and it will most probably stay at these elevated levels for a few upcoming quarters (at least).

Finally, we looked at the capital structure of these companies. All of the observed companies have the majority of their funding from equity (>50%). If we were to rank them from highest to lowest, HT has 100% of their operations financed from equity (as the company has no debt). Span is to follow with 97.4% of equity funding. Ericsson NT has 90%, Končar has 87%, Adris has 86.4% and Podravka has 86.2%. On the other hand, the only 2 companies that have less than 60% of their finances from equity are Valamar Riviera and Arena Hospitality Group, at 55.7% and 46.3%, respectively. Considering they both operate in the tourism industry, this is to be expected.

Capital structure of CROBEX10 constituents

Source: Companies’ data, InterCapital Research

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