LB Notes IBG Early Redemption of 2019 Debentures Results in Some Dilution, Reduces Overhang and Increases Financial Flexibility
IBI Group Inc. (IBG-T)
Rating: Buy– Target: $7.00 Price: $6.29
Mona Nazir, MBA, Industrials Analyst (NazirM@lb-securities.ca; 514-350-2964)
Impact: Mixed.
Increases share count by 20% (anticipated) but increases financial flexibility.
IBI will redeem $31M of its outstanding 7% convertible unsecured subordinated debentures (June 30, 2019 maturity, $5.00 conversion). Recall the 2019 debentures were part of the restructuring plan and extended from 2014.
Using the current price of $6.29 total shares issued would equate to 5.2M vs. the 6.2M ($5.00 conversion price). The early redemption further reduces leverage to 3.5x from 4.3x (Q2/2016) and 6.9x (Q2/2015).
Given the 7% interest rate ~$2.2M would be saved on annual interest payments hence our 2017 EPS would decline from $0.53 to ~$0.48 (13x 2017 P/E multiple). IBI’s 2017 EV/EBITDA multiple of 7.7x would remain unchanged.
At this point in time we reiterate our Buy rating and $7.00 target price. We look to update our model after speaking to management.