Table 1: Bond Information
| ASLAU 7.500% 26Apr2029 Corp (USD) | |
| Issuer | Perenti Finance Pty Ltd |
| Guarantor | Perenti Limited |
| Currency | USD |
| Years to Maturity | 4.5 |
| Guarantor Credit Rating (S&P / Fitch) | BB / BB+ |
| Bond Credit Rating (S&P / Fitch) | BB / BB+ |
| Indicative Ask Price (Investor Buys) | 105.1 |
| Yield to Maturity (Bond Express) | 6.2% |
| Minimum Investment Amount (Bond Express) | USD 100,000 (Professional Investor: USD 5,000) |
Source: FSMOne Data as of 1 November 2024 | |
Introduction
Perenti is an Australian mining service company. The company is the largest listed mining service company in Australia. It is listed on the Australian Securities Exchange (Stock Code: PRN.AU), with a market capitalisation of around AUD 1.1 billion.
Business and Credit highlights
According to the estimate of Deutsche Bank and data from BHP, in 2024, it was estimated that the capital expenditure of mining industry will reach to USD 55 billion, increased by around 10% YoY. In 2025, they will continue the high capital expenditure as in 2024, showing that the mining companies have higher incentives to increase their capital expenditures.
Mining companies' capital expenditure programs will drive the orders and revenues for mining service companies. The mining services companies will see a larger boost in profitability and cash flows, driving their credit performance. As such, Perenti is one of the indirect beneficiaries of the bull cycle of metal commodities.
Perenti’s main customers are large mining and resource companies, including BHP Group, RioTinto, Glencore and Gold Fields Ltd etc. The company is working with these customers for 12 years or more. Its service covers commodities such as gold, copper and nickel. There is a certain degree of diversification, with gold-related orders accounting for nearly 70% of all Perenti’s orders.
Perenti's total contract value reached AUD 21.0 billion at the end of June 2024, a 7% YoY increase, benefiting from an increase in pipeline orders. These contract values provide a high certainty on the company’s future revenues and cash flows. The figure is equal to around six years of the company’s revenues (based on the trailing 12 months’ revenues). These contracts will gradually be converted into revenues going forward.
In FY2024 (from July 2023 to June 2024), Perenti's total revenues were around AUD 3.34 billion, up 16% YoY, thanks to its DDH1 Group acquisition and solid business model. Its EBITDA rose 17% YoY to AUD 645 million, in line with the revenue growth and stable margin. The cash conversion ratio (operating cash flow before interest and tax / EBITDA) is strong at 98%, resulting in a decent free cash flow of AUD 184 million, up by 58% YoY. Its operating performances were strong and solid.
For credit highlights, as of the end of June 2024, the net debt was around AUD 470 million, down by 6% YoY. The net debt to EBITDA and net gearing ratio were 0.7 times and 26% respectively, both of which were considered low. The company is taking advantage of free cash flow for debt reduction. Meanwhile, the company had an undrawn credit facility of about AUD 370 million and high interest coverage ratio of 7.9 times. The credit metrics were decent.
Table 2: Perenti's Credit Metrics
Jun 23 | Jun 24 | |
Net Debt (AUD million) | 500 | 470 |
Net Debt / EBITDA (times) | 0.9x | 0.7x |
Net Gearing Ratio (%) | 35% | 26% |
Interest Coverage Ratio (times) | 8.6x | 7.9x |
Source: Company’s Announcements, iFAST compilations Data as of 30 June 2024 | ||
Perenti successfully issued a USD 350 million five-year bond with a coupon rate of 7.5% in April this year. The proceeds are used to redeem part of its USD bonds maturing in 2025 and repay part of its syndicated loan. The new issuance demonstrated its strong refinancing ability.
Given the bright industry outlook, a high visibility in Perenti's order book, revenues and cash flows and low leverage level, we believe the company’s credit risk is limited in the short to medium term.
Bond Investment
Perenti and the bond credit ratings are BB / BB+ (S&P / Fitch), considered as a non-investment grade level. We expect a potential credit rating upgrade going forward, given ongoing decent cash flows to reduce the debt level, more orders and stronger profitability.
As such, investors who look for higher yield choices could consider "ASLAU 7.500% 26Apr2029 Corp (USD)" with a yield to maturity of 6.2%, which is more attractive.
Related Risks
Perenti is in a highly cyclical industry where the fluctuations in commodity prices and the capital expenditure plans of mining companies would affect the company's revenues and cash flows. The debt repayment could be affected.
When the industry as a whole is in a downturn, the counterparty risk could be higher, as some mining companies could fail to meet their commitments, which could affect Perenti's earnings performance.
Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds positions in ASLAU 7.500% 26Apr2029 Corp (USD). The analyst who produced this report holds NIL position in the abovementioned securities.
