Auga Group share decline: 'financial hole’ and refinancing risks

As the share price of Auga Group continued sliding downward, PLY Analytics co-founder Vitalij Šostak commented for Verslo žinios on the reasons behind the price decline and the challenges the company is facing.

According to V. Šostak, with the current level of interest costs and the company’s present operating performance, the company “has no ability to fully meet its financial obligations.” “It seems that we have reached a situation where the level of interest rates will no longer matter at all – the key issue will simply be the ability to obtain financing at all. At any cost,” evaluates V. Šostak.

V. Šostak notes that the company’s problems could have been seen much earlier – since 2018, the company’s free cash flow has been negative, and it is somewhat surprising why investors are reacting this way only now. Negative free cash flows are mainly driven by deteriorating core operating performance, rising interest expenses, the ‘freezing’ of funds in working capital, and investments in fixed assets.

“Persistently negative free cash flow has created the company’s absolute dependence on external financing. With the current operating indicators, refinancing alone is clearly insufficient – additional financing is needed to continue covering the hole created by negative free cash flow,” says V. Šostak.

Read more in the Verslo žinios article: „Auga Group“ akcijų nuosmukis: „finansų skylė“ ir refinansavimosi rizikos.