AFR Insert:
Don't worry about the debt levels in newly listed United Malt Group even though they are above the company's target range.
That's the view from Bell Potter analysts on Monday morning, who initiated United Malt Group coverage with a "buy" call and $5 a share price target.
United Malt Group is the fourth largest commercial maltster globally with processing plants across Canada, the United States, Australia and the UK. AAP
The analysts said UMG started with $433 million net debt on a pro forma 2019 financial year basis, which was 2.7 times expected 2020 earnings before interest, tax, depreciation and amortisation and above the 2-to-2.5 times target range.
"With a history of reasonable operating cash realisation (~90% FY16-19 NPATDA), completion of an investment phase (Abroath online 1Q22e) and modest SIB capex (~50% D&A), we see the debt burden as manageable, with a forecast 60% payout ratio," the analysts told clients.
Bell Potter said United Malt Group had $737 million in available financing facilities, including a $360 million term facility due to expire in November 2022 and working capital and inventory financing facilities due to expire in November this year.
The initiation note came after United Malt was spun out of GrainCorp last week.
Its shares have traded between $3.79 and $4.28 since listing. They were down 5¢ to $4.05 in mid-morning trade on Monday.
Bell Potter said investors should consider United Malt Group's contracted revenue, which represented about 90 per cent of forecast 2020 financial year sales, 75 per cent of 2021 forecasts and 50 per cent of 2022's numbers, and the company's favourable exposure to a weakening Australian dollar.
