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Labco reported 2Q12 earnings overnight, beating market expectations for both revenue and earnings. 2Q12 sales totalled €146.9mm, up 14.9% on the prior year as the result of acquisitions, organic growth, and mix effects, offset by weaker performance in Portugal and pricing pressures in Spain. EBITDA of €31.1mm was up 18.3% from €26.2mm in 2Q11. The company generated €21.6mm of cash from operations and paid down debt in the quarter. Net leverage now stands at 4.8x on a trailing basis, or somewhat lower on the company’s PF leverage measure for covenant compliance.
Very similar trends to recent quarters. France was the main source of revenue growth as in 4Q11 and 1Q11, with organic growth, mix factors, and M&A all contributing. Revenue was again up in Iberia in spite of price reductions in Spain and a drop in both volumes and prices in Portugal; this was the result of acquisitions, as well as increased volumes in Spain. Germany was essentially flat.
No update on potential sale of the company. The company did not provide further detail on the approaches received from potential buyers earlier in the year; investors will surely have questions about where things stand on the conference call.
Overall, these results should be viewed as positive. Labco managed to maintain its EBITDA margin in spite of pricing pressures and difficult trading conditions in the European periphery. The market sentiment is that the bonds are trading more in anticipation of upside from a sale of the company than on the basis of current company performance. However, underlying results make Labco a more attractive acquisition target and also put a floor under bond valuation in the event that a deal does not come about.
Labco bonds are attractive at current levels (~95-96, or a 9.5-10% YTW), given the company’s decent performance and the potential upside to a c-o-c put or make-whole price if the company is sold.
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