Nordic Credit Rating (NCR) said today that it had affirmed its 'BBB+' long-term issuer rating on Norway-based IT infrastructure provider Atea ASA. The outlook is stable. At the same time, the short-term issuer rating was raised to 'N2' from 'N3', reflecting the company's improved liquidity position.
Rating rationale
Our 'BBB+' long-term issuer credit rating on Atea reflects the company's low financial leverage as a result of strong operating cash flow and modest investment requirements. The rating also reflects Atea's strong position as the largest provider of IT infrastructure in each of its markets in the Nordic and Baltic regions and the third-largest provider in Europe. We regard the company's focus on the public sector as an additional credit strength, due to the sector's relatively low cyclicality. We have revised our view on the company's financial risk to reflect the lower debt levels due to the reduced inventory needs as supply chain concerns have been reduced. Despite a history of high dividend payouts, we believe the company maintains a low financial risk appetite and has reduced refinancing risk by extending the maturity of its primary bank loan to 2029.
The rating is constrained by Atea's moderate EBITDA margins, which stem primarily from a focus on reselling IT hardware and software, while the high-margin service business generates less than 20% of revenues. The rating is also constrained by the cyclicality of IT investments, especially in the private sector. While last year's supply chain issues have now been resolved, we see a risk of new global supply chain disruptions, for example due to geopolitical issues.
Stable outlook
The outlook is stable, reflecting our expectation that the market for IT infrastructure will continue to grow at a healthy rate with stable margins in the years ahead. It also factors in our expectations of a normalised supply chain situation, reducing the need for large inventories and higher debt levels. Moreover, the outlook reflects our belief that the company will neither make major debt-financed acquisitions nor significantly increase leverage.
We could raise the rating to reflect revenue growth that continues to outpace market growth, a commitment to an NCR-adjusted net debt/EBITDA ratio below 1.5x, or to reflect increased operating efficiency that leads to EBITDA margins above 8%. We could lower the rating to reflect NCR-adjusted net debt/EBITDA above 2.0x for a protracted period, to reflect an adverse change in market dynamics, or to reflect supply chain issues that result in lower sales and declining EBITDA margins.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BBB+ | BBB+ |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N2 | N3 |
Contacts:
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
Gustav Nilsson, analyst, +46735420446, gustav.nilsson@nordiccreditrating.com
The methodology documents used for this rating are NCR's Corporate Rating Methodology published on 8 May 2023, NCR's Rating Principles published on 24 May 2022 and NCR's Group and Government Support Rating Methodology published on 18 Feb. 2022. For the full regulatory disclaimer please see the rating report.