(Finance) – Moody’s has downgraded the corporate family rating (CFR) of Engineering Computer Engineering to “B3” from “B2”. The outlook has been changed from “negative” to “stable”.
“Today’s rating action reflects the weak financial parameters of Engineering, characterized by a high degree of financial leverage and from one limited generation of free cash flowwhich Moody’s forecasts will only gradually improve and is therefore expected to remain at levels consistent with a B3 CFR for at least the next 2 years,” said Fabrizio Marchesi, Moody’s lead analyst for Engineering.
“The rating action also reflects management’s expectation will refinance your upcoming maturities successfully and in a timely manner of the company’s debt”, added Marchesi.
There lever financial position remained high at 8.3x as of September 30, 2023, while the generation of free cash flow (FCF) in the first nine months of 2023 was negative by approximately 100 million euros. This is despite revenue and EBITDA growth over the period.
While Moody’s expects the company’s revenue to grow at a mid-single digit rate over the next 12 to 18 months, with adjusted EBITDA rising towards €270 million by December 2024 and €285 million by December 2025, the Engineering’s financial metrics will remain relatively weak. More specifically, it provides that the leverage will remain high, around 7.0x over the next 12-18 months, while EBITA/interest is expected to remain below 2.0x. Furthermore, it expects FCF generation to move towards break-even levels in 2024 and become only moderately positive in 2025.
Engineering’s rating also takes into account: lack of geographic diversification of the company outside Italy and of customer concentration; fierce competition in the fragmented Italian IT market; Engineering’s high net working capital position with a high level of receivables, a significant portion of which are past due; the risk of debt-financed acquisitions or shareholder-friendly actions, as well as the risk of unexpected corporate governance issues.