Nampak is winning the war on its debt


Nampak is winning the war on its debt


Published Date: 2021-08-02 | Source: INCE|Community | Author: The Finance Ghost

Nampak is winning the war on its debt

There are numerous turnaround stories on the JSE at the moment. Nampak is one of them, with a share price that is down 87% over 5 years.

However, year-to-date Nampak is up 40%. If you can get the timing right on these types of companies, you can do very well. Much of this gain happened on Friday, as the share price rallied over 13% based on a voluntary trading update for the nine months to June 2021.

As I mentioned in the EOH article this morning, companies going through a tough time will typically release frequent updates to the market to keep people appraised of progress being made.

The great news out of Nampak is that revenue is up 24% for this nine-month period, although the comparable period includes significant disruptions from hard lockdowns and regular alcohol bans.

Still, this is what shareholders want to see.

The other focus is on debt covenants, which are limits imposed by banks that the company must adhere to. Debt covenants frequently refer to balance sheet measures (i.e. the total quantum of debt relative to profitability) and income statement measures (i.e. the interest charge relative to profitability).

For example, Nampak needs to keep net debt : EBITDA below 4.5x and must achieve EBITDA : interest cover of at least 2.25x.

These are revised (i.e. easier) limits based on negotiations with the banks. The original limits were net debt : EBITDA of 3x and EBITDA : interest cover of 4x.

Critically, Nampak has achieved net debt : EBITDA of 2.99x and EBITDA : interest cover of 4.06x. Not only are these ratios well ahead of revised targets, but they are also better than the original targets.

Nampak will release another voluntary update in September before going into a closed period on 1 October 2021.


Mdu Shabalala 1 month ago

Well done Nampak by previous emplpyer

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