Fitch Ratings has affirmed Swedish investment company
The Outlook is Stable.
The rating reflects a number of factors, the most important of which is the quality of the company's wholly owned operations as well as its income stream from equity investments, both of which have remained resilient through the pandemic and are expected to remain strong.
Other key factors supporting the rating include Latour's long-term commitment to its diversified portfolio, the liquid nature of its assets, the stable nature of the dividend stream and a conservative capital structure. The company also has good liquidity and strong free cash flow.
The Stable Outlook reflects our view that Latour will maintain its prudent financial policy and that the loan-to-value ratio (LTV) relating to its equity investment portfolio will remain well below 25% over the coming three years.
Key Rating Drivers
Equity Investments Underpin Rating: The key driver of Latour's IDR is the quality of its income stream, both from its fully owned subsidiaries and its equity investments. Latour's rating is supported by the Fitch-calculated blended income stream rating for the company ('BBB'), which receives a two-notch uplift for supplemental rating factors to reflect the fact that Latour's credit profile is consistent with the 'A' rating category.
The supplemental rating factors relate to the quality and stability of the dividend stream, the LTV ratio, asset liquidity and the company's investment strategy and investment record.
Diversification Uplift: The rating further benefits from a one-notch uplift for the diversification of the equity investment portfolio, which has only limited concentration. While several holdings are exposed to the manufacturing and construction industries, we view the diversification within these companies, both by end-market and geographical, as adequate. The majority of Latour's holdings are international companies, some with a global presence, while others operate more regionally in Nordic countries.
Assa Abloy Concentration: Fitch views the number of investments in Latour's portfolio as sufficient for the rating, but there is some income concentration risk related to the largest holding,
Solid Capital Structure: Latour's loan-to-value (LTV) ratio increased to 17% at end-3Q22, up from about 11% at end-2021 as a result of the significant decline in the value of its equity investment portfolio, which broadly mirrored the wider
The relatively minor deterioration in the ratio also reflects the moderate debt levels at Latour and the conservative funding strategy of the group. The rating is underpinned by our expectation that the company will maintain a LTV of well under 25% through the medium term.
Moderate Acquisition Pace to Remain: The outlay on new acquisitions has been lower than usual so far this year (expected to be under
Dividend Income to Bounce Back: We expect 2022 dividend income from equity investments to be about 30% higher than the
Cash Deployment to Remain Conservative. Latour has a prudent financial policy, and we expect its shareholder distribution levels to remain conservative in the short to medium term in order to support small bolt-on acquisitions out of free cash flow generation. We expect 2022's dividend payment to be about
Long-Term Investment Horizon: Latour is a mixed investment holding company with six wholly-owned subsidiaries and 10 investment holdings, all of which are listed, thereby supporting the company's solid liquidity. Fitch believes that Latour's long-term commitment to its investments and the medium to strong ability to influence the operations, either through 100% ownership or as principal owner, create stability and value-adding effects.
Derivation Summary
Latour's rating is equal to that of
Caixa has a blended income stream rating of 'BBB-', one notch below Latour's, and benefits from a two-notch uplift from supplementary factors based on five of nine factors assessed in the 'A' category. Despite having a smaller number of equity investments (five) than Latour, Loews benefits from a higher blended income stream rating of 'BBB+' and a two-notch uplift for supplementary rating factors, of which eight out of nine are scored in the 'A' category according to Fitch's criteria.
Key Assumptions
Revenue from wholly-owned companies to grow around 15% in 2022 based on acquisitions and strong performance in
Strengthened EBITDA to 16.3% in 2022 before a small decline over the next two years due to inflationary pressures before increasing back to 2022 level by 2026.
Dividends from equity holdings to recover to around
Full redistribution of dividends received from partly- and wholly-owned investments to Latour's shareholders 2023-2026.
Capex of 1.8% of revenue in 2022 increasing to 1.9% of revenue for 2023-2026.
Acquisitions of
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:
Improvements in the underlying credit quality of equity holdings resulting in an upgrade of Latour's Fitch-calculated blended income stream rating
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:
Deterioration in the underlying credit quality of equity holdings or wholly-owned holdings resulting in a downgrade of Latour's Fitch-calculated blended income stream rating
Material decline in one or more supplemental rating factors leading to a reduction in the current notching uplift
Change in investment or financial policy at the holding company level resulting in acquisitions or shareholder-friendly actions inconsistent with the current rating profile
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Solid Liquidity: At end-3Q22, Latour's reported cash position was
Diversified Debt Structure: Latour's funding consists mainly of bonds issued on the Swedish market with an outstanding value of
Issuer Profile
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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