Soitec : Reflections on the potential soft call on the OCEANE bonds
Since the beginning of 2017, the Soitec share price has risen by more than 80%, from € 24.40 to around € 54 at present. This performance was primarily attributable to its operating results that tally with management's expectations (whereas prior to the restructuring of its balance sheet, Soitec was better known for its profit warnings…) and a now decent EBITDA margin (16.7% in FY 2016-17). - Against this backdrop of a sharp increase in the share price, the price of the Soitec 2018 OCEANE bond (on which we have been positive since July 2015: "speculative Buy" recommendation initially, adjusted to "Buy & Hold" in early January 2017) rose by 25% from € 2.8 (107% of par) to around € 3.5 (136% of par). Its yield is now clearly negative (approx. -18%) vs. +4% in early 2017. - The existing 2018 OCEANE bond (outstanding amount of € 45m) has a soft call at 130% exercisable from 10 October 2016. According to the prospectus, for the soft call to be exercised, the arithmetic average of the opening share price (over 20 consecutive trading days chosen by the company within the last 40 trading days preceding the potential soft call notice) should be higher than the € 50.8 trigger. - We note that the opening price for the Soitec share has continuously exceeded this trigger since 5 June 2017, i.e. more than 20 consecutive days. Therefore, there is a strong likelihood that the forthcoming soft call will be exercised, in our view. The operation, though capped at € 45m, would be particularly attractive from a balance sheet standpoint in view of the potential reopening of the Singapore plant, with total spending of approximately $ 270m (financing options under review) to attain its maximum output over the next few years (850k wafers annually). - The OCEANE bond currently displays a slightly negative premium (to the bid price). We would therefore advise investors not to sell at this level but to exercise the conversion option once/if the soft call is exercised. We have revised our recommendation to Neutral to give a better reflection of this market situation. - >Soitec is a manufacturer of silicon and integrated circuits. Co. offers products based on Silicon-on-Insulator (SOI), which serves to support the manufacturing of more energy-efficient integrated circuits. Co.'s operations can be divided into three divisions: Electronics, Solar Energy and Lighting. The Electronics division manufactures and sells substrates and components intended for the microelectronics industry; the Solar Energy division manufactures and sells photovoltaic modules, designs and constructs turnkey projects, and operates photovoltaic power plants; and the Lighting division isolates resources to develop materials designed for the production of light emitting diodes.
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