The latest information on the rating, including rating reports and related methodologies are available on this LINK.

Rating action

Scope has today assigned a B+ issuer rating to Masterplast Nyrt. The Outlook is Stable. Senior unsecured debt is rated B+.

Rating rationale

The B+ private issuer rating is driven by Masterplast’s comparatively strong credit metrics, including a relatively high EBITDA-interest cover ratio, as well as modest leverage, with a Scope-adjusted debt (SaD)/EBITDA of between 3.5x and 4.0x (2018: 3.7x). Scope forecasts leverage to remain at that range in the coming years, benefitting from i) a forecasted increase in EBITDA resulting from further revenue growth and a comparably stable margin; and ii) stable SaD, with major capital expenditure cuts set to generate positive free operating cash flow, according to management. The rating is also supported by the company’s high exposure to the maintenance end-market, which is less cyclical than the construction materials market, leading to more stable cash flows and less volatile margins.

The rating is mainly constrained by the company’s small scale, which lessens its ability to benefit from economies of scale or to offset the impact of economic cycles. Relatively high capital expenditure from 2016 to 2018 (EUR 20m) has translated into some growth in terms of revenues (+16% since 2015) and EBITDA (+18%). However, Scope does not expect Masterplast to reach a size that would enable it to withstand the entry of large competitors into its niche markets. Masterplast’s markets include: facade insulation systems (48% of 2018 revenues); roofing foils and roofing elements (16%); dry construction system (11%); heat insulation, soundproofing and waterproofing materials (13.5%); construction industry accessories (3.4%); and products for industrial use (8%).

The rating is also limited by relatively low but stable profitability (EBITDA margin of around 6%; 2018: 6.4%). Combined with the company’s small scale, this exposes Masterplast to a loss in market share in the event of a price war initiated by larger peers seeking to gain market share. In addition, Scope judges diversification to be poor because Masterplast generates most of its revenues in one region (Europe) and is exposed to only one segment (construction materials). Thus, the company is exposed to the European construction cycle and is dependent on a small number of end-markets and their underlying demand-patterns. Compounded by the high cyclicality of the construction industry, there is the risk of a sharp decline in revenues if the economy and/or demand weakens. According to management, revenues declined by 25% during the most recent downturn in 2009.

Liquidity

Masterplast’s liquidity is assessed to be adequate. In detail:

Position: YE 2018 / 2019E
Unrestricted cash: EUR 2.1m / EUR .2.0m
Open committed credit lines: EUR 0.0m / EUR 0.0m
Free operating cash flow (t+1): (EUR 2.6m) / EUR 1.8m
Short-term debt: EUR 18.7m / EUR 1.2m
Coverage: negative / 3.2x

Liquidity has been weak in the last couple of years, mainly driven by negative free operating cash flows resulting from high capital expenditure. However, Scope expects liquidity to be above par in 2019. This assumes the successful issuance of the HUF 6bn (EUR 18m) bond during Q4 2019, the proceeds of which will be used to repay Masterplast’s high portion of short-term debt. Aside from the repayment of short-term debt, Scope anticipates positive free operating cash flows to result from the major capital expenditure cuts, thus further supporting future liquidity. Masterplast’s interest-bearing liabilities are subject to financial maintenance covenants, whose headroom is marginal in Scope’s base case scenario. A covenant breach is therefore likely in the case of unforeseen events.

Senior unsecured debt

Based on Scope’s recovery analysis, an ‘average recovery’ is expected for the company’s senior unsecured debt, resulting in a B+ rating for this debt class (the same rating as the issuer rating).

Masterplast plans to issue HUF 6bn (EUR 18m) of corporate notes with a tenor of seven years in Q4 2019. These will be issued under the Hungarian National Bank’s Funding for Growth Scheme.

Outlook

The Outlook is Stable and reflects Scope’s view that credit metrics will remain at current levels, with ongoing strong EBITDA interest cover and a SaD/EBITDA of between 3.5x and 4.0x. The Outlook also assumes the successful issuance of the HUF 6bn (EUR 18m) bond, leading to improved liquidity, with the bond proceeds used to repay short-term debt.

Rating-change drivers

A positive rating action may be warranted if the company can reduce its leverage to a SaD/EBITDA of below 3.5x on a sustainable basis.

A negative rating action could occur if SaD/EBITDA exceeded 4x on a sustainable basis or if the company was unsuccessful in issuing the HUF 6bn bond and thereby prevented from repaying most of its short-term debt.

Stress testing & cash flow analysis
No stress testing was performed and Scope performed its standard cash flow forecasting for the company.

Methodology
The methodology used for this rating and/or rating outlook (Corporate Rating Methodology) is available on www.scoperatings.com.
Historical default rates of the entities rated by Scope Ratings can be viewed in the rating performance report on https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA Please also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s definitions of default and rating notations can be found at https://www.scoperatings.com/#governance-and-policies/rating-scale.
The rating outlook indicates the most likely direction of the rating if the rating were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The rating was not requested by the rated entity or its agents. The rated entity and/or its agents participated in the rating process. Scope had access to accounts, management and/or other relevant internal documents for the rated entity or related third party.
The following substantially material sources of information were used to prepare the credit rating: public domain, the rated entity, third parties and Scope internal sources.
Scope considers the quality of information available to Scope on the rated entity or instrument to be satisfactory. The information and data supporting Scope’s ratings originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the rating or outlook action, the rated entity was given the opportunity to review the rating and/or outlook and the principal grounds on which the credit rating and/or outlook is based. Following that review, the rating was not amended before being issued.

Regulatory disclosures
This credit rating and/or rating outlook is issued by Scope Ratings GmbH.
Lead analyst Philipp Wass, Executive Director
Person responsible for approval of the rating: Olaf Tölke, Managing Director
The ratings/outlooks were first released by Scope on 9 September 2019.

Potential conflicts
Please see www.scoperatings.com for a list of potential conflicts of interest related to the issuance of credit ratings.

Conditions of use / exclusion of liability
© 2019 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Analysis GmbH, Scope Investor Services GmbH and Scope Risk Solutions GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.
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