GN’s Proposed Capital Raise Withdrawn From Annual General Meeting; Shares Undervalued

GN Store Nord GN, which previously announced its intent to increase share capital through a pre-emptive rights issue to existing shareholders for as much as DKK 7 billion in February, held its annual general meeting on March 15. The board of directors’ proposal for the rights issue was withdrawn as advance votes and shareholder response voiced opposition. GN did comment that roughly half of the received votes were for the rights issue, but the proposal required a two-thirds majority to be passed, and so it was removed from the meeting agenda.

Without the rights issue, and with around DKK 7 billion of debt coming due in 2024, GN’s board is in a tougher spot to balance paying down debt to achieve the goal of 1-2.0 times net interest-bearing debt/EBITDA with having cash on hand to fund growth. However, GN does have a revolving credit facility of EUR 350 million (approximately DKK 2.6 billion at current exchange rates). Provided it does not pay dividends or complete additional share buybacks and is prudent with capital expenditures over fiscal 2023 and 2024, we believe GN will be able to meet its debt requirements without a rights issuance but by utilizing the revolving credit facility as necessary.

Additionally, GN built up inventory between fiscal 2020 and 2022 in response to first the coronavirus pandemic and then global supply chain issues. We anticipate that it will work to decrease its held inventory and increase days payable outstanding to more normalized historical levels during 2023, freeing up additional cash. It would take longer to reduce GN’s net interest-bearing debt/EBITDA ratio from 7.1 at the end of fiscal 2022 to the board’s goal of 1-2.0 than via the capital raise, but it would not have the same value-destructive effect as a DKK 7 billion rights issuance.

We are updating our model to incorporate these additional factors and the weaker markets seen in fiscal 2022 but view the shares as undervalued at current prices.