Half-term Report Card - II

Cybergun announced today that it had signed agreements with its banks extending the maturities of its term loans. The agreements will be signed this month. It has also sold two noncore subsidiaries, SMK Sportsmarketing (rifles) and I2G (video games), for €5 million in cash and a possible extra €1.3 million in contingent consideration. Separately, it will issue 4.7 million new shares at €1 each, effectively doubling the share count.

The upshot of all this is that the liquidity risk is reduced. €34.7 million in bank debt will now come due in smaller installments spread out over a 6 year period; €9 million in bond maturities over the next year (€6 in July, €3 next February) seem to be well covered by cash on hand, subsidiary sales, and the equity raise (~€ 15 million) before accounting for any cash flows generated by the businesses as it continues to work down its inventory to normal levels.

The prices of the 8% bonds and the equity have therefore both risen a bit – by 32% and 25% respectively.

The 8% bonds have been altogether de-risked, in my view, and the yield to maturity at the current price is about 25%.

The equity is more troublesome: if one thinks the underlying business deserves an enterprise multiple of greater than 7x, the shares are quite good value; if one doesn’t, they are uninteresting. The equity raise appears to be already quite well subscribed.

Disclosure: I am long the bonds and the equity