ATTO - Atento

[SafetyinNumbers]

The float looks really small post consolidation (even though it’s unchanged on a $ basis). 4m shares is hardly anything and about half of that think it’s worth at least $40.

[SafetyinNumbers]

Forgot to put this recent seekingalpha article here:

https://seekingalpha.com/article/4369479-atento-deeply-undervalued-significant-potential?v=1597840895&comments=show

[SafetyinNumbers]

Nice twitter thread from the recent conference call on refinancing the debt after Labor Day.

https://twitter.com/shamiramit/status/1306172640139370497?s=21

The bonds traded at 98 yesterday and there is a 103 call provision so there might be some incentive for existing holders to push it through.

The stock has been pulling back on low volume which might be an interesting entry point. The float is tight with only about 4m shares outside of GIC, HPS and Farallon.

Net debt is $525m (includes leases), market cap $125m and normalized EBITDA over $200m.

Post debt refinancing (if it happens) I think we see $40 and not $4 (again) but I am also long and biased. Even if the market doesn’t care to revalue the equity if they begin applying free cash flow to buybacks it will have the same impact. Q2 free cash flow (permanent working cap improvements) was enough to buy the entire float at current prices.

[Broeb22]

Is there any possibility/likelihood of a sale here? Seems Atento would be a much better fit inside a larger company to reduce customer concentration.

I'm just thinking out loud here since Synnex recently announced they're moving forward with their Concentrix spin. I think Concentrix has some overlap with Atento in what they do.

Seems like Concentrix will be priced at a much higher multiple post-spin based on Synnex's current valuation than Atento currently trades.

Is there a stubborn majority owner here who would not accept a 4-5x EBITDA multiple buyout? You could provide equity owners a nice gain.

[SafetyinNumbers]

Is there any possibility/likelihood of a sale here? Seems Atento would be a much better fit inside a larger company to reduce customer concentration.

I'm just thinking out loud here since Synnex recently announced they're moving forward with their Concentrix spin. I think Concentrix has some overlap with Atento in what they do.

Seems like Concentrix will be priced at a much higher multiple post-spin based on Synnex's current valuation than Atento currently trades.

Is there a stubborn majority owner here who would not accept a 4-5x EBITDA multiple buyout? You could provide equity owners a nice gain.

I will take a look at Comcentrix, thanks.

The three big holders own over 60% and I’m guessing they would take fair value. I think management would like to see it through their 2022 plan but would sell at the right price. Presumably the controlling shareholders think ATTO might as well buy as much of the equity back and get margins up as high as possible before pursuing a sale.

Each multiple point is worth $15/share so getting 4x or 6x makes a giant difference to returns although both are considerably higher from here.

[SafetyinNumbers]

Atento announces a new debt offering:

https://www.prnewswire.com/news-releases/atento-announces-proposed-offering-of-senior-secured-notes-301133930.html

To pay for a tender for the existing debt:

https://www.prnewswire.com/news-releases/atento-announces-any-and-all-cash-tender-offer-for-outstanding-notes-301133931.html

Success on this offering would extend out maturities for at least 3 years and allow the company to use more free cash flow for equity repurchases. The float cap is only 4m shares or less than $40m so it doesn’t take a lot of capital to make a meaningful difference.

[SafetyinNumbers]

Big bond trade reported near the end of the day Friday at 98.875 which perhaps is a good signal that this tender and new issue will be successful.

I don't have much experience with US debt markets so take it with a grain of salt!

https://finra-markets.morningstar.com/BondCenter/BondTradeActivitySearchResult.jsp?ticker=C701229&startdate=09%2F20%2F2019&enddate=09%2F20%2F2020

[SafetyinNumbers]

Unfortunately, ATTO pulled the debt refinancing. Markets had become more unfavourable since they announced the proposal a few weeks ago. Brazilian CDS was up and the Real weakened which increased the potential cost of debt by 100bps.

The current notes aren’t due until Aug 2022 so there is still lots of time to roll the debt or sell the company.

[SafetyinNumbers]

Atento will have its conference call on Nov 11 for Q320 results.

https://investors.atento.com/investor_news/atento-sets-date-for-fiscal-third-quarter-2020-results/

I think the street is too low for Q3 so there is an opportunity for a beat. I don't know if the stock will react but we'll find out soon enough.

The street is expecting EBITDA of $34m on revenues of $326m or a margin of ~10%. That's despite the company reporting that margins were north of 14% in June as the business normalized somewhat after significant spending on the pandemic response. There might be more of those types of expenses in Q3 but I think a 14% margin assumption makes more sense than 10% which would put EBITDA at $45m on the consensus revenue.

I think the consensus revenue is reasonable. I calculate revenues around $320m for the quarter with no growth in local currency but the company did indicate some revenues will come back from Telefonica in Q3 and outside of TEF, they have been growing pretty well. Constant currency sales grew 5%+ in Q2 and 7%+ YTD outside of TEF. On that basis, there is potential for a beat on revenue too, in my opinion.

Consensus EBITDA for 2021E is ~150m which at the current share price puts valuation at 4.3x EV/EBITDA ($525m net debt / 14.1m shares / $8.20 share price).

Consensus revenue for 2021E is 1.4bn. If margin assumptions lift to 14% for 2021E, the EBITDA estimate would jump to $196m, which at the same multiple of 4.3x, spits out a share price of $22.50.

All this of course if anyone notices and if the estimates end up being a reasonable prognostication.

[StevieV]

The trading volume is nothing.  Really, really low.

If they want to raise the share price, they don't need anyone to notice.  They just need to actually hit those margin and EBITDA numbers and refinance the debt so that they can do the tender you mention above.  Tender may not actually retire many shares given the volume.  I don't know, but it should retire shares, raise the price or both.  Earnings and refinancing are very important IMHO.