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

Rating action

Scope Ratings GmbH (Scope) has today affirmed AutoWallis Nyrt.’s issuer rating at B+ and revised the Outlook to Stable from Positive. Scope has also affirmed the senior unsecured debt rating at B+.

The full list of rating actions and rated entities is at the end of this rating action release.

Key rating drivers

Business risk profile: BB- (improved from B+). The business risk profile remains constrained by AutoWallis’ relatively small size in the European market and its weak product diversification, as most of its revenue is generated by vehicle sales, which are subject to cyclical demand. The issuer has taken significant steps towards reducing its dependency on its home market, with the share of domestic revenues declining to 41% in 2023 (51% in 2022) and is currently present in 16 countries in CEE with the ambition to further expand its footprint.

Profitability is historically low, as is typical for car dealerships, but improved from 2022 onwards due to inflation and the increase in the average car price caused by the supply chain disruption, driving the Scope-adjusted EBITDA margin* to 5.5% (from 4% in 2021). In 2023, the issuer was able to pass on costs to customers and maintain stable profit margins. AutoWallis will likely accelerate its growth plan in the next three years to expand in Central Europe, with expected investments of around HUF 95bn. Scope expects future acquisitions to support profitability in the long term by broadening the revenue stream and generating economies of scale. Such view is supported by the company’s proven track record in integrating new business.

Financial risk profile: B+ (weakened from BB-). The financial risk profile has benefited in the past from sustained EBITDA growth allowing deleveraging and solid interest cover. Going forward, Scope expects the financial profile to deteriorate as a consequence of the company’s partially debt-funded expansion strategy. Scope expects debt/EBITDA* to rise above 4x in 2024E (up from 2.7x in 2023) driven by the debt-financed acquisition plan and increasing working capital loans. Such level is expected to be sustained in Scope’s forecast horizon. Similarly, Scope expects EBITDA interest cover* to worsen and remain between 2.9x and 3.5x (compared to 7.5x in 2023) over the next few years as a result of significant additional debt. Nonetheless, Scope expects the financial metrics to remain commensurate with the rating, as EBITDA is anticipated to continue to increase, benefiting from the inorganic growth and the positive trend in the automotive market, thus partially offsetting the projected increase in debt.

Liquidity: adequate. AutoWallis’ liquidity is considered adequate, considering that a substantial part of the short-term debt is inventory financing. Both inventory loans and reverse factoring are repaid when the inventory is sold, and the direct financing of each vehicle ensures that each loan is 100% covered by the particular vehicle.

Scope highlights that AutoWallis’s two senior unsecured bonds issued under the Hungarian National Bank’s Bond Funding for Growth Scheme have a covenant requiring the accelerated repayment of the outstanding nominal debt amount (HUF 9.7bn) if the debt rating of the bonds stays below B+ for more than two years (grace period) or drops below B- (immediate repayment). Such a development could adversely affect the company’s liquidity profile. The rating headroom to entering the grace period is one notch. Scope therefore sees no significant risk of the rating-related covenant being triggered. 

Outlook and rating sensitivities

The Stable Outlook, revised from Positive, reflects that Scope expects leverage to increase to above 4x in the medium term, driven by AutoWallis’ plan of accelerated debt-funded growth.

The upside scenarios for the ratings and Outlook would require (individually or collectively):

1. Debt/EBITDA to remain below 4x, which could be driven by higher-than-expected EBITDA.
    
2. Successful implementation of the company’s ambitious expansion plan without major negative impact on profitability and credit metrics.

The downside scenario for the ratings and Outlook would require:

1. Debt/EBITDA to rise above 5.0x in the medium term. This could be driven by lower-than-expected revenues due to general weakness in the transaction market or debt-financed investments significantly above Scope's base case. 

Debt ratings

Scope has affirmed the B+ rating of the senior unsecured debt issued by AutoWallis. Scope based its recovery assessment on a liquidation value in a hypothetical default scenario in 2025 and expects an ‘above average’ recovery for bondholders. Nonetheless, Scope refrains from notching up the senior unsecured debt rating due to the high sensitivity of the recovery ratio when applying higher haircuts to asset values.

AutoWallis has two bonds issued under the Hungarian Central Bank’s Bond Funding for Growth Scheme. In April 2020, the Company issued a HUF 3bn senior unsecured bond (ISIN: HU0000359476). The bond proceeds were used for fleet financing (HUF 2.3bn), while HUF 0.7bn remains still available. The bond has a tenor of 10 years and a fixed coupon of 3.0%. Bond repayment is in one tranche at maturity date April 2030. In July 2021, AutoWallis issued a HUF 6.7bn senior unsecured green bond (ISIN: HU0000360664). The bond proceeds were used for property purchase (HUF 0.9bn) and for CAPEX (HUF 1.7bn), while HUF 4bn remain still available. The bond has a tenor of 10 years and a fixed coupon of 3.0%. Bond repayment is in five tranches starting 2026 (10% of face value payable each year from 2026 to 2030 and 50% balloon payable in 2031).

Environmental, social and governance (ESG) factors

Overall, ESG factors have no impact on this credit rating action.

All rating actions and rated entities

AutoWallis Nyrt.

Issuer rating: B+/Stable, Outlook change

Senior unsecured debt rating: B+, affirmation

*All credit metrics refer to Scope-adjusted figures.

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

Methodology
The methodologies used for these Credit Ratings and Outlook, (General Corporate Rating Methodology, 16 October 2023; Retail and Wholesale Rating Methodology, 26 April 2024), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. 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 Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Credit Ratings were not requested by the Rated Entity or its Related Third Parties. The Credit Rating process was conducted:
With the Rated Entity or Related Third Party participation    YES
With access to internal documents                                        YES
With access to management                                                 YES
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity and Scope Ratings' internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and Outlook and the principal grounds on which the Credit Ratings and Outlook are based. Following that review, the Credit Ratings and Outlook were not amended before being issued.

Regulatory disclosures
These Credit Ratings and Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and Outlook are UK-endorsed.
Lead analyst: Claudia Aquino, Associate Director
Person responsible for approval of the Credit Ratings: Sebastian Zank, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 18 September 2019. The Credit Ratings/Outlook were last updated on 7July 2023.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
© 2024 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, and Scope ESG Analysis 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 independently assess 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.