European Event-Driven Analyst

Jesus Rodriguez Aguilar

Jesús is an Insight Provider (Event-driven) on the Smartkarma network, where he looks across sectors at opportunities arising from securities mispricing (both credit and equity), share classes, bid announcements, prospective bids, and special situations. He has served as Economic and Business Advisor at the Spanish Congress in Madrid. Prior to that, he has worked in the City of London: as a Credit Analyst at Bloomberg; Event-driven associate at former boutique European Research; and doubled as Special Situations and Equity-linked VP (convertible bonds) at Merrill Lynch. Jesús has an MBA from the London Business School, a BA (Hons.) degree in Economics from the Complutense University in Madrid, and a BA (Hons.) in Law from U.N.E.D., also in Madrid.

Event-Driven

<a href="https://www.smartkarma.com/entities/imperial-brands-plc" target="_blank" data-smartkarma-citation="entities:21994:1" rel="noopener">Imperial Brands (IMB LN)</a> lacks some of the world class brands that both Philip Morris (Marlboro, LM and Philip Morris) or BAT (Lucky Strike, Pall Mall and Dunhill) own. In a declining market, Imperial has underperformed its peers.
Imperial has a problem of leverage (high for the tobacco, food and beverages industries). As of 30 September 2019, net debt/EBITDA was 3.0x.
On 27 April 2020 , Imperial announced the sale of its premium cigar business for GBP 1,074 million to two private consortiums. Imperial intends to use the cash to reduce its debt. 
Imperial holds indirectly (thought Altadis) 50.01% of <a href="https://www.smartkarma.com/entities/compania-de-distribucion-integral-logista-holdings-s-a" target="_blank" data-smartkarma-citation="entities:21280:1" rel="noopener">Logista (LOG SM)</a>, a logistics operator and distributor to proximity retailers and convenience outlets, leader in Southern Europe (Spain, France, Italy and Portugal).
Logista is being managed for cash: it distributes as dividends at least 90% of consolidated net income.
By assuming a disposal at an EV/2020e EBITDA of 10.21x, I estimate that Logista could be valued at EUR 3,110 million, or 23.40 per share, a c.45% premium vs. a current market cap of EUR 2,134 million.
Pro-forma net debt of Imperial (ex-Logista), including the effects of the Premium Cigars and Logista sales should be c. GBP 8,752 million.
<ul>
<li>That is 2.4x proforma net debt/proforma 2020e EBITDA (GBP 3630 million) vs. the current 3.0x net debt/EBITDA.</li>
</ul>
On that basis, the trade recommendations are:
<ul class="">
<li>
Long Logista, as I consider a sale highly likely, target price EUR 23.4 per share.</li>
<li>
Long Imperial, on a 8x EV/EBITDA (vs 9x for the closest comparables, but Imperial lacks the strong brands that its peers have), price target GBp 2,162 per share.</li>
<li>
Long Imperial bonds, as they would benefit from any significant reduction in leverage, for instance the 3.125% 07/24 USD 1,000 mn outstanding currently yielding 3.417 (YTW).</li>
</ul>

Imperial Brands (IMB LN) lacks some of the world class brands that both Philip Morris (Marlboro, LM and Philip Morris) or BAT (Lucky Strike, Pall Mall and Dunhill) own. In a declining market, Imperial has underperformed its peers.
Imperial has a problem of leverage (high for the tobacco, food and beverages industries). As of 30 September 2019, net debt/EBITDA was 3.0x.
On 27 April 2020 , Imperial announced the sale of its premium cigar business for GBP 1,074 million to two private consortiums. Imperial intends to use the cash to reduce its debt. 
Imperial holds indirectly (thought Altadis) 50.01% of Logista (LOG SM), a logistics operator and distributor to proximity retailers and convenience outlets, leader in Southern Europe (Spain, France, Italy and Portugal).
Logista is being managed for cash: it distributes as dividends at least 90% of consolidated net income.
By assuming a disposal at an EV/2020e EBITDA of 10.21x, I estimate that Logista could be valued at EUR 3,110 million, or 23.40 per share, a c.45% premium vs. a current market cap of EUR 2,134 million.
Pro-forma net debt of Imperial (ex-Logista), including the effects of the Premium Cigars and Logista sales should be c. GBP 8,752 million.

That is 2.4x proforma net debt/proforma 2020e EBITDA (GBP 3630 million) vs. the current 3.0x net debt/EBITDA.

On that basis, the trade recommendations are:


Long Logista, as I consider a sale highly likely, target price EUR 23.4 per share.

Long Imperial, on a 8x EV/EBITDA (vs 9x for the closest comparables, but Imperial lacks the strong brands that its peers have), price target GBp 2,162 per share.

Long Imperial bonds, as they would benefit from any significant reduction in leverage, for instance the 3.125% 07/24 USD 1,000 mn outstanding currently yielding 3.417 (YTW).


Imperial Brands (IMB LN): Trade Ideas for a Potential Sale of Logista (LOG SM)