Cobra chief executive Steve Burrows says company first needs ‘spare few million’ to pay off external shareholders

Cobra will consider delisting from the London Stock Exchange’s Alternative Investment Market (AIM) once it pays down debt and has some spare money, according to chief executive Stephen Burrows. But, despite recently examining this possibility, the broker is not in a position to do so right now.

“Our problem with delisting from AIM at the moment is we have to treat all shareholders fairly. And we have to find a route to pay off all the external shareholders,” Burrows said. “At the moment, that wouldn’t allow us to reduce the debt as fast as we want to reduce it. If, however, we got into a position where we had a few million pounds spare, then that is one of the things we would consider.”

Burrows added that the company may equally decide to keep its listing once it has spare cash, because at that stage it may be attractive.

Cobra share price

The company currently has a heavy debt burden. Full accounts for the year to 31 March 2011 show that, Despite a 3% reduction in net debt to £15.3m from £15.8m the previous financial year, its gearing ratio - the level of debt as a percentage of overall capital - has increased to 61% from 58%.

The gearing ratio rise was caused by a 16% drop in equity levels to £9.6m in 2010/11 from £11.4m in 2009/10. The equity drop in turn was fuelled by the company’s £1.9m after-tax loss for the 2010/11 year, caused by a £1.5m goodwill write-down in relation to the sale of its Caterham and Alton operations to ASG Risk Management. ASG is a subsidiary of Aston Scott.

As we repay debt that, for example, has a coupon of 12.5%, our ability to repay other debt increases”

Stephen Burrows, Cobra

Despite the losses, Burrows says that Cobra is now in a much better position to pay down its debt. He explains that the £1.5m impairment - effectively the difference between the purchase and the sale price of the two broking units - has not affected the cash position of the business because the value has been transferred elsewhere in the group and not been lost.

Equally, the proceeds from the sale will help the company pay down debt more quickly. “Now we have got considerably more cash coming in, our ability to pay debt is far advanced to what it was prior to selling to Aston Scott,” Burrows said.

“As we repay expensive debt that, for example, has a coupon of 12.5%, our ability to repay other debt increases because we are not paying the 12.5% on that debt.”

He adds that Cobra could be debt-free within five years.

Cobra’s 2010/11 accounts also reveal that Burrows took a 23% pay cut in 2010/11. His total remuneration fell to £150,000 from £194,863. Total directors’ pay, however, increased 2% to £456,089 from £447,18

Pass notes: Cobra and AIM

Which other brokers have delisted from AIM?
CBG delisted on 28 September following its merger with Giles. Lloyd’s broker THB may delist if its sale to US broker AmWINS goes through.

How much will Cobra get for its Caterham and Alton operations?
Cobra will receive an initial £5.49m payment on completion of the sale, and a £2.7m cash earn-out over the next two years.

What is Cobra’s share price performance like?
Cobra’s share price closed at 42p on 10 October. The company started 2011 trading at 65p. But Burrows said that, because of the small free-float, relatively small share transactions can cause big fluctuations.

Cobra aims to pay interest-bearing debt with the unit sale. How much of this does it have?
Burrows says that around £10.5m of the company’s debt is interest bearing, and that the sale proceeds will be used to reduce this by at least £7.5m.