The Pact Group Holdings Ltd (ASX: PGH) share price rocketed 11.40% higher on the ASX yesterday after the company made an announcement about its debt refinancing – but is the struggling stock in the buy zone?
What did Pact announce yesterday?
Pact announced that it has successfully extended debt of $380 million, maturing in July 2020, to January 2022, at "competitive terms", and has gained approval from lenders for the establishment of a subordinated debt facility.
Pact has entered a $50 million, 6-year subordinated unsecured term loan. Funds from the loan will be used to pay down senior debt and provide the Group with greater funding flexibility going forward.
Management does not believe the arrangements will materially change Pact's cost of funds.
Why did Pact need to refinance its debt?
Despite yesterday's jump, the Pact share price is still down 24.4% so far this year to just $2.54, well short of its 52-week high watermark of $5.58 per share set in August 2018.
On February 12 this year, Pact announced non-cash asset impairments of $310 million – $340 million after tax in its half-year accounts in both its packaging assets and goodwill in Australia.
This followed the August 2018 announcement that the company would be expanding its closed loop pooling operations through the acquisition of TIC Retail Accessories for $122 million, with the Pact share price shedding 22% in just one day on the news, coupled with the group's full-year FY18 results.
Is Pact in the buy zone?
While the Pact share price did climb 11% yesterday, I think there is further potential for a share price rebound from the group in the second half of the year.
I believe that much of the movement in the share price will be driven by the company's August 2019 full-year results with people waiting to see if the company has turned around its financial fortunes.
The company currently boasts a market cap of $873 million and is offering investors a dividend yield of 9.1% after the recent share price declines, and is trading at just 10.9x earnings, making it a compelling relative value play in my books.
I would personally be waiting until after the August results to see whether Pact will be showing signs of a healthier balance sheet and income statement before jumping into the stock.
