Key message: In the absence of certainty, we adjust our numbers to reflect 3-months of lost revenue to test robustness.

  • We adjust our earnings to reflect an assumed 3-month loss of business due to the lockdown restrictions. The impact and extent of the lockdown can only be guessed at present – we have assumed that a strict lockdown followed by a gradual easing will effectively remove 3 months of revenue from divisions with non-essential businesses in 2H FY20.
  • Many of Nampak’s businesses produce essential products and production plants have not been stopped as a result of the lockdown (some non-essential product lines are not being produced). The major impact will be the loss of alcohol sales in the Bevcan division. Weak oil prices will be negative for the economies of Angola and Nigeria.
  • The sale of the Glass and Cartons Nigeria businesses will inject R1.9bn of cash into Nampak – this is very timeous with some debt of US$115m becoming due in FY20. We calculate that Nampak will stay just within its revised Net Debt:EBITDA covenant of 3.5 times.
  • Our base case valuation uses FY21 EBITDA numbers and gives a medium-term Target Price of R2.53. If we use FY20 EBITDA numbers, our short-term valuation is R2.20. This includes a weakened 2H FY20 in the base.
  • We would be Neutral in the short-term until the full economic impact of the restrictions is clearer. Volume and margin weakness was evident before the lockdown and debt covenant levels are likely to be tested.

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