Research Update: French Pasta Manufacturer Panzani Outlook Revised To Negative On Higher-Than-Expected Leverage; 'B' Ratings Affirmed

In our view, Pimente Investissement SAS (Panzani)'s profitability will be weaker than expected in 2022 due the time lag to offset high operating cost inflation with price increases, which, together with the use of factoring lines to finance working capital, means adjusted leverage (debt to EBITDA) should rise to about 8.0x, well above our previous forecast of about 6.0x. In 2023, we forecast that the EBITDA margin will gradually recover to 9.5%-10% versus 8.5%-9.0% in 2022, supported by stable sales volumes and price increases, which should better offset operating costs. We believe Panzani's very strong market share and brand recognition in the stable food category, with low unit prices, will support its pricing power, allowing adjusted leverage to decrease to

...- In our view, Pimente Investissement SAS (Panzani)'s profitability will be weaker than expected in 2022 due the time lag to offset high operating cost inflation with price increases, which, together with the use of factoring lines to finance working capital, means adjusted leverage (debt to EBITDA) should rise to about 8.0x, well above our previous forecast of about 6.0x. - In 2023, we forecast that the EBITDA margin will gradually recover to 9.5%-10% versus 8.5%-9.0% in 2022, supported by stable sales volumes and price increases, which should better offset operating costs. - We believe Panzani's very strong market share and brand recognition in the stable food category, with low unit prices, will support its pricing power, allowing adjusted leverage to decrease to about 7x, with stable free operating cash flow (FOCF) of 10 million-15 million. - We therefore revised our outlook on Panzani to negative from stable and affirmed the 'B' long-term issuer credit and issue ratings on the group...

Research Update