Algeco - leading indicators still holding up well

All,

Algeco has had a reassuring Q1 20 results and call. Leading indicators of the business, such as new rental orders, have been holding up well. We will be reassessing Algeco’s long term debt sustainability and potential equity cushion in light of potentially continued resilience in the wake of the coronavirus crisis, but also with a view to the potential risk of layering.

Key takeaways:
- EBITDA excluding M&A has still seen a small increase of EUR1m yoy in Q1 20, despite the EUR2m impact from coronavirus during the quarter.
- The business has generated EUR30m of cash in April, half from cash flow deferrals and half from cash flow generated in the normal course of business.
- Management still sees EUR60-70m as a good level of steady state capex.
- Business has remained mostly resilient apart from UK and France. France has seen significant 70% of staff furloughed but is now coming back. UK is also gradually coming back.
- Algeco has seen no material impact on either volumes or prices of second hand unit sales, and believes the underlying value of its existing fleet has remained unchanged during the period.
- Management is currently considering a new unsecured loan backed by the French state. The loan is likely to be raised at the local subsidiary and therefore would rank structurally senior to the unsecured bonds, whose subsidiary guarantees are not exhaustive. Management stated that its covenants allow for such a loan, but refused to disclose the basket under the covenants or the potential size of the new loan. Management of course emphasizes that this is being done only on a precautionary basis, as it see more than enough liquidity in the business as it stands.
- Average rental rates are still seeing no pressure so far.  

Please feel free to reach out if you would like to exchange ideas on the name. 

Juliano