CMA CGM – Fleet of foot with the wind in its sails
All,
Please refer to our unchanged analysis here
CMA-CGM is of course enjoying a rebound in activity, but there is more. Q1 2021 revenues were boosted by higher-than-expected shipping volumes, however USD422m of the increase came from a better-than-expected box and freight rates as global supply chain strains forced rates higher. This dynamic is unlikely to change until new supply comes on board from mid-2022. This was reflected in USD400m of CAPEX on 22 new vessels for delivery in 2023/24. Margins will remain constrained by higher staff and facilities costs (for the same demand-led reasons) but operating leverage will see profitability boosted. We continue to expect strong cash generation in 2021. We also continue to expect much of that cash to be invested in the fleet. Yields on CMA CGM bonds have already normalized. The strong outlook makes a sell-off unlikely.
Revenue of USD10.7bn was USD1bn above our forecast, split as follows:
- Shipping revenue of USD8.6bn was 8% ahead of us with 6% of the difference down to higher volumes (an extra 544k TEU), and from a per TEU rate 2% ahead of expectations. The shift towards consumption of goods over services has pushed volumes higher and congestion in supply chains continues to juice rates. - Logistics also surprised on the upside, with revenue of USD2.1bn, USD270m above our forecast, due to air-freight yields being 37% higher year on year (volumes were actually marginally lower). EBITDA was USD3.2bn vs our forecast of USD3.0bn (4% ahead), showing the other side of the cost coin.
Margin: - Chartering and Handling costs were elevated ultimately leading to an EBITDA margin of 30%, which was 1% lower than we expected. A deterioration in trade payables of USD449.2m, contributed largely to the USD70m worse than expected WC performance. As a result, OCF was USD2.9bn, USD100m short of our estimate.
Leverage: The company repaid all its USD950m in state-guaranteed loans in the quarter. It was able to announce a USD350m dividend (paid after the quarter-end). It also signed a new USD2.1bn, 3-year receivables securitization facility (increased from USD1.8bn). The previous facility was USD1.7bn drawn so we would expect a boost to working capital from receivables sales in the coming quarters.
Orderbook:
- Post-quarter-end CMA ordered 22 new vessels for delivery between 2023/24. These will be from the Chinese company CSSC and will include 12 with capacity of between 13-15,000 TEU. This rush is being repeated throughout the industry. The good times for rates are likely to begin to fade in 2023 as this and other capacity comes online.
Positioning:
We remain long the 2022 bonds for 2% of the NAV at around 100, but the bonds trade tight, are constraint and the position is marked for exit.
Happy to discuss any ideas on the name.
Aengus
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E: amcmahon@sarria.co.uk
T: +44 203 744 7055