The bank, which had upgraded Petra in April as planned deleveraging was expected to drive an equity re-rating, on Wednesday it cut its rating back to ‘sell’ with an 8p price target.
Petra’s latest quarterly statement and guidance for 2020 highlighted that deleveraging “would be slower than we had anticipated”.
Furthermore, Berenberg reckons the impact of reduced diamond price estimates, driven by weak diamond markets, will “materially reduce” its net asset value and cash flow projections.
As Petra moves towards the maturity of its US$650mln bond in May 2022, this heightens the concern about the company's ability to repay its refinanced debt over the current life of mine to 2030, analysts wrote in a note to clients.
Based on forecast adjusted free cash flow generation of US$135mln over 2020-2022, the analysts think that this leaves Petra with the need to refinance circa US$475mln of forecast debt when it falls due, which is “still too much” considering the level of forecast cash flow generation.
Based on a life of mine to 2030, coupled with an expected increase in capex from 2023 as deferred capex is incurred, the analysts do not think that Petra’s operations will generate enough cash to repay the refinanced debt principal in full, and so therefore see an increased likelihood of an equity raise as part of the debt refinancing.
“In our view, this leaves little near-term upside for shareholders, and feel that for now, Petra is working for the banks, with equity holders forced to take a backseat and/or assist in a refinancing.”