Fitch Ratings has affirmed the National Long-Term Rating on Sierra Cables PLC at 'BB+(lka)'. The Outlook is Stable.
The affirmation reflects Fitch's expectation that Sierra's leverage will continue to improve in the next 12 months, driven by a sustained recovery in demand and profitability in the financial year to 31 March 2020 (FY20) due to strong project-based revenue growth and the sustained turnaround in its previously unprofitable subsidiary Sierra Industries due to sizeable contract wins.
We expect Sierra's net leverage, defined as lease-adjusted debt net of cash/operating EBITDAR excluding cash flows from overseas operations, to remain below 3.5x - the upper-limit for its rating. Leverage was high at 3.8x at FYE19, but has since improved to 1.7x based on trailing 12-month EBITDA to end-June 2019 (1QFY20).
Sierra's rating also reflects its modest market share in the domestic copper and aluminium cable market, which is counterbalanced by its exposure to cyclical end-markets, such as infrastructure and construction. The rating also factors in risks associated with its investments in international markets, where the company has yet to establish itself.