Liquid Intelligent Technologies (High Yield) – Q4 25: Decent quarter, still making progress on the second equity tranche and asset sale; call feedback included

What’s new: Liquid has reported a decent set of Q4 results with underlying revenue trends improving and decent cash generation. Adj. EBITDA trends slowed further, as a result, net debt to LTM EBITDA slightly ticked up but it remains below the 3.50x covenant threshold. The company says it is making progress on the second equity tranche and the asset sale which will provide more relief and will also unlock the remainder $70m of the $220 new SA facility; it is also needed for the bond refinancing.

Operationally, Liquid saw revenue growth decline by 6.2% y/y from -1.7% y/y in the prior quarter, driven by lower Network and Data port revenue. This was on the back of tougher comparable from the $19.2m Eastern Cape Government (ECG) infrastructure sale last year. Excluding FX impact and the sale of infrastructure related to ECG, revenue would have grown by 4.7% YoY (Q1: 0.8%, Q2: 16.2%, Q3: 3.6%). Adjusted EBITDA declined by 14.3% y/y, impacted by higher staff costs and the non-recurrence of the non-cash provision movements from the prior year. In spite of this, FY25 EBITDA is still up 3% YoY. The company had previously commented on a further $15m of savings next year. Capex climbed slightly to $15.5m from $10.8m last quarter but FY spending of $50.3m came in - as we thought - below the $55-65m guide for this year. Capex was down by 37% YoY in Q4 which has helped mitigate the EBITDA this quarter. OpFCF was slightly below last year (-5% YoY) but FCF of $10m was roughly in line with Q4 24, and still positive.

FY26 guidance: With regard to revenue and Adj. EBITDA, the company targets “ good growth in local currency and more stable exchange rate levels / internal focus on USD revenue”. With regard to capex, the company is guiding for capex to be between $60m and $70m, we have $77m currently in our forecasts.

South African rand Term Loan refinancing and first equity tranche:  As previously announced this year, Liquid managed to sign a new SA facility ($220m equivalent) which has enabled the signing and closing of the first equity tranche ($90m). $45m of the $90m first equity tranche went into the bond perimeter, of which $25m was used to pay down the RCF. For more on this, please see HERE. The new TL facility signed in December, will become usable once the remaining condition is satisfied (final equity CP), the company is working on that.

Second equity tranche of $135m equity: The company says it continues to make progress on the second equity tranche of $135m. The company had previously outlined that at least 50% of the equity financing ($225m in total) will go into the bond perimeter. If we were to assume $67.5m of the $135m equity raise was used to relieve its debt, this would imply a current net debt/EBITDA of ~3x (4Q25: 3.29x).

Key points from the call:

Revenue: Solid underlying

KPIs were broadly solid, especially churn, which reduced to 0.4% vs. 0.43% last year (0.4% is the lowest point in the past 2 years). Fibre expansion in Q4 accelerated sequentially but remained relatively modest as the pan-continental network is largely complete (+427km vs. +355km in Q3). The monthly recurring revenue at 91% is slightly down sequentially (92% in Q3) but up y/y (71.4% Q4 24).

Excluding FX impact and the sale of infrastructure related to ECG, revenue was solid, slightly accelerating to 4.7% YoY from 3.6% in Q3.

Reported revenue growth

Reported revenue growth - Segments

We show below the revenue composition by regions.

Reported revenue growth - Regions

EBITDA: Impacted by higher overheads; decent margins

Gross profit increased by 10.5% YoY in Q4, but Adjusted EBITDA fell by 14.3% YoY from -7.8% in Q3 due to higher staff costs (inflationary pressure, especially in Zimbabwe) and positive other income in Q4 last year. On a FY basis, overhead and other costs were roughly flat, as the cost optimisation program helped mitigate impact from the inflationary pressures. Margins in Q4 were down by 3.6pp YoY to 38% but recovered nicely sequentially (Q3: 31%). Over time however, margins are expected to rise given the company had guided for an additional $15m in savings in FY26.

Capex: Low

Capex of $ 15.5m in Q4 implied total capex spend of $50.3m for FY25 which came below the $55-65m guide. As the build of our network is largely complete, a larger share of the capex was focused on customer connections compared to last year.

FCF: Still positive

Net leverage: Slightly up sequentially but down YoY

Net leverage slightly increased sequentially (+0.04x) but it reduced by 0.18x YoY to 3.29x as of end of Q4 25 and remains below the 3.5x covenant threshold.

YTW evolution

Conclusion: At the time we launched coverage on Liquid our confidence in the companies’ ability to refinance successfully was not strong, although risk appeared mitigated by good asset cover. With strong operational progress this year, reduced leverage, and good progress on the new ZAR TL, our confidence has increased, while asset cover is if anything improving. The company needs to continue to execute on the asset sale and the second equity tranche. Despite the rally in Liquid bonds from the peak in July last year, it still looks undervalued we think.