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Tranzit-Food Kft. has announced its intention to issue a HUF 9.2bn Hungarian National Bank bond under the MNB Bond Funding for Growth Scheme. The new bond will have an anticipated fixed coupon of 2.0% per annum, a maturity of seven years with amortization and 50% repayment upon maturity. The amortization schedule is the following: 10% of the face value for 2025 and 20% per annum for the period 2026-2027.* The maturity is seven years, and the proceeds are expected to fund investments for additional capacity on its existing plants and potential external growth. After reviewing the rating case, Scope Ratings GmbH (Scope) believes that Tranzit’s leverage should remain under control. Therefore, the company’s issuer rating of BB/Stable and senior unsecured debt rating of BB remain unchanged.

Scope reviews its ratings either yearly, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations. Monitoring reviews are unrelated to the calendar that outlines public finance rating actions.

Scope performs monitoring reviews to determine whether outstanding ratings remains proportionate. Monitoring reviews are conducted either by performing a portfolio review in terms of the applicable methodology/ies, latest developments, and the rated entity’s financial and operational aspects relative to similarly rated peers; or through targeted reviews on an individual credit. Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for Tranzit-Food Kft. on 10 June 2021. This monitoring note does not constitute a rating action nor does it indicate the likelihood of a credit rating action in the short term. The latest information on the credit ratings in this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

The issuer rating is largely supported by Tranzit’s leading position in Europe as a goose and duck processor. Tranzit is responsible for 50% of the goose meat supply in Hungary and 18% in Europe. For duck, Tranzit has a market share of 32% in its home country and 8% in Europe. Scope views positively the ongoing diversification of Tranzit’s poultry meat production. Although this type of meat is less profitable than duck or goose, it should allow Tranzit to continue benefiting from the larger chicken market while maintaining duck and goose as niche markets. The company’s creditworthiness is also supported by strong liquidity, a track record of low leverage and a strong operating margin. Tranzit has a good profitability track record, with an EBITDA margin ranging between 10% and 14%. However, the latter was negatively impacted in 2019 and in 2020, dropping below 10%. This was the result of lower prices in the overall poultry market, driven by production overcapacity and temporarily limited export opportunities due to the Covid-19 crisis.

The rating is constrained by Tranzit’s limited overall size compared to other European players, as well as concentration issues regarding its footprint and customer portfolio (especially for chicken). The lower profitability of the broiler segment combined with the future increase of Tranzit’s exposure to chicken is likely to weigh on its overall EBITDA margin, further limiting the rating. Scope expects the impact of the Covid-19 crisis to be fairly limited for the company. This is because the non-discretionary nature of the goods it sells affords a general resilience to economic downturns. Despite good overall credit metrics, Tranzit’s financial risk profile is constrained by forecasted negative free operating cash flow due to massive capex which cannot be financed organically.

*Editorial note: Bond amount, currency and maturity of the bond added to on June 17, 2021

The methodologies applicable for the reviewed ratings and/or rating Outlook (Rating Methodology: Corporate Rating, 26 February 2020; Consumer Products, 30 September 2020) are available on https://www.scoperatings.com/#!methodology/list.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Thomas Langlet, Senior Analyst

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