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Ebix 3Q22 results, Vantage JV, midterms & OMIBs ?3

12:01 09-Nov-22

The Ebix conference call has just ended, apparently prematurely, after technical difficulties.  Management opined at length about extraordinary times, the exceptional strength of the dollar, and its financial strength.  I see the company drowning in inflationary wage costs and note that it admitted having projects that are running behind due to resource constraints.  As for extraordinary times, my retort is that this is what predictably happens in a rising rate environment when you operate in jurisdictions with poor rule of law and rampant graft. 

The CEO says an IPO launch would come 6-8 weeks after red herring approval, which means there's maybe a month of holiday-packed time left before debt matures.  In the meantime, the board is seeking pre-IPO investment from Indian banks, but my view above is indicative of why there is reason to doubt IPO success even if approval is received.

While I do expect that Ebix can arrive at some refinancing deal, I am not willing to bet that the terms won't bring further negative impact to the shares; Dish just priced $2b of 5-year secured debt at 11.75%.  I see this as a step toward financial difficulty and eventual M&A, possibly with Lumen, as well as an indicator of how onerous refinancing is likely to be for Ebix.  I will watch for the further announcements that have been promised, but remain hands off until the terms of debt solution are detailed.

Ebix has released its third quarter results:

• 70 cents of EPS beats by 10 cents
  
• from $257.9M of revenue, which beats by $50.9M
  

EBIX is up over 6% to trade just below $18 in the pre-market, but I don't care about the beats.  The $23.6M of operating cash flow is not nearly enough to handle the debt and management can only say that it will announce the name of a reputed American investment bank to advise on refinancing and the EbixCash IPO.  Current Liabilities are above $800M and Current Assets are $336M.  The conference call is at 11am and I will write more if any actual clarity is available.

In the meantime, I will also document Vodafone's JV to monetize its Vantage Towers stake.  KKR and GIP (which also backs Clearway) will wind up with up to a 50% equity stake in the JV if they can fully raise capital from investors at the €32 share price.  That represents a 19% premium to the 3-month average price, but is well below prior levels.  That would result in €7.1b to Vodafone.  At the minimum commitment, which is expected to close in 1H23, Vodafone would receive €3.2b.  Leverage will thereby by reduced somewhere between 0.2-0.5x.  VOD is down over 2% in the American pre-market, though still somewhat above recent lows.  I have no interest in the shares in advance of the next earnings report, which is due soon, but I do think this is a step towards M&A.  Verizon, which is also on the ropes, recently brought former Vodafone CEO Colao back to its board, reviving memories of Vodafone's stake in the American operator and my dreams of truly international service.

It seems that the midterms will give Republicans control of the House, as expected, but any hopes for a Red Wave have been dashed.  Senate control is still too close to call.  Democrats got a key win in Pennsylvania, meaning Republicans will need to win 2 of 3 remaining toss ups in Arizona, Nevada and Georgia.  Nevada is leaning toward a Republican win, in Arizona the Democrat has the lead but the count is far too early to call and will probably narrow.  Georgia is likely to require a runoff on December 6th.

Finally one more Lumen Director OMIB has been reported for another 11.5K shares at $5.90.  This doesn't change my prior commentary.

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