Growing worries that the weakening diamond market will force the diamond finder to carry out an equity financing before long sent the stock fading below 10p for the first time in its history at the end of last week.
Petra had admitted in its year-end trading statement last Monday that deleveraging “would be slower than we had anticipated”.
Among the reaction to the update, a couple of days later analysts at Berenberg suggested that the impact of weak diamond markets on diamond prices will “materially reduce” Petra’s cash flow and making it more difficult to repay its US$650mln bond, which matures in May 2022.
Forecasting adjusted free cash flow of US$135mln over 2020-2022, Berenberg predicted this would leave Petra with the need to refinance circa US$475mln of forecast debt when it falls due.
Analysts said this is “still too much” considering the level of forecast cash flow generation, so would require a top-up from an equity fundraising.
Petra comforts on cash flow
But in response to the fast-fading sparkle of its shares, Petra insisted on Tuesday that it “is not considering raising equity” to refinance.
The company, which back in the late 1990s was the first diamond company to float on AIM, noted that operating free cashflow topped US$60mln in the second half of its financial year.
“This is a significant achievement given the current challenging market conditions in rough diamonds,” Petra said.
Petra added that Project 2022 aims to “identify and drive efficiencies and improvements” to lift free cash flow to US$150-200mln by 2022.
Chief executive Richard Duffy said he expected the launch of ‘Project 2022’ this month “will deliver significant incremental cashflow over the next three years, further improve our net debt position and provide us with future growth options”.
Cash resources stand at US$90mln, plus there is the US$70.4mln revolving credit facility and US$35.2m in working capital facilities.
Addressing capex concerns
Petra also addressed “some third party commentary” in relation to capex guidance that “raised concerns around potential increases in capex spend” beyond the 2020 financial year, saying the capex budget for that year was reduced by bringing forward some spend to 2019 and by re-prioritising projects.
The reduced FY2020 capex guidance “nevertheless provides for the ongoing sustainability of the business”, Petra said, stating that there is no requirement for any significant expansionary capex between FY2020 and FY2022.
Fresh analyst reactions
Analysts at RBC Capital Markets said that the key item was that Petra has circa $160mln of available liquidity, of which US$90mln is in cash; that the group is not currently planning to use equity to repay its bond and that “the group’s lower than expected capex projection for FY2020 is sustainable”.
“With a market cap of c. $110 mn on net debt of $560 mn shares are likely to remain volatile in the near term,” RBC said.
While another relatively weak report from DeBeers will also not help on diamond pricing sentiment, RBC added, but they felt Petra management “are doing a good job of controlling what they can operationally”.
Petra shares were up 25% to 12.75p by Tuesday lunchtime.