One of the worst performers in FY19 could be making a comeback as the stock has surged to the top of the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index leader board this morning.
This dog is the Pact Group Holdings Ltd (ASX: PGH) share price, which has surged 4.3% to $2.65 at the time of writing and is comfortably ahead the Appen Ltd (ASX: APX) share price and Bellamy's Australia Ltd (ASX: BAL) share price, which are in second and third spots.
The PGH share price gain is on top of yesterday's 11.4% rally after the debt-laden company said it secured the support of its debtors.
From ugly duckling to swan?
However, it's a long road to redemption for the packaging group as the stock is still down close to 50% over the past year when its peers like the AMCOR PLC/IDR UNRESTR (ASX: AMC) share price is up 12% and Orora Ltd (ASX: ORA) share price shed a more modest 10% in value over the period.
Every long journey begins with the first step and Pact Group may finally be heading in the right direction with Goldman Sachs upgrading the stock to "buy" after management announced yesterday that it has refinanced its debt.
"With the key stock overhang now gone, we are now more comfortable that the risk/return trade-off is more attractively balanced," said the broker.
"With our 12-month target price of A$3.02 offering c.20% upside at current levels, we are comfortable adding the stock back to our Buy list (from Neutral)."
New debt-pack triggers re-rating
The refinancing arrangement allowed Pact Group to extend the maturity of $380 million worth of debt that was due for repayment in July 2020 to January 2022 – and at competitive terms to boot!
It also got relief from its debt covenant to the end of this calendar year and its lenders have agreed to allow it to establish a subordinate debt facility.
That last concession cleared the way for Pact Group to secure a six-year $50 million unsecured subordinate term loan, which will be used to pay down senior debt and give the group greater funding flexibility without materially increasing its cost of capital.
The company also said that underlying earnings before interest, tax, depreciation and amortisation (EBITDA) would come in at the lower end of its FY19 guidance range of $230 million to $245 million.
Investors aren't bothered by that given earlier worries that Pact Group would succumb to its debt burden.
It also probably helps that the market on the whole is looking expensive and value buys are difficult to come by. Pact Group isn't quite out of the woods yet but given how far behind it is, the stock could be worth a punt for bargain hunters.
But this isn't the only stock that represents value. The experts at the Motley Fool believe these stocks also make good buying candidates for FY20.
Follow the link below to find out what these ASX stocks are.
