CMA CGM - Q2 20 results call and comments

All,

 CMA CGM has benefitted from the industry’s ability to maintain price discipline while reducing both capacity and associated costs in line with the significant contraction of volumes, in line with the observed in the rest of the industry. As we previously noted, this is due to the significant changes in industry concentration since the 2008-2009 crisis, both via mergers and via the alliances of shipping companies. Going forward, CMA CGM’s ability to refinance will depend on investors’ perception about the durability of this favorable but unstable equilibrium.

Like Hapag Lloyd and Maersk before it, CMA CGM also reported a combination of a significant contraction of volumes, more than offset by the improvement in margins. CMA CGM mentions the possibility of a refinancing, which would presumably address the 2025 notes. 

Key takeaways (all numbers post IFRS):
- EBITDA was up +26.3% yoy in Q2 20 thanks mainly to the good rates vs bunker margins, and some company’s specific cost cutting.

- Volumes in shipping down -13.3% yoy in Q2 20, revenues down -10.9% yoy due to the partial offset of higher freight rates.

- Logistics (CEVA) Q2 20 revenues down -4.7% yoy, but EBITDA up +4.1% yoy mainly due to improved air cargo freight rates. Turnaround plan on track.

- Volumes recovery, which started in April, to continue in Q3 20.

- “The Group is confident in its business outlook for the third quarter of 2020: the current strong momentum of the shipping market, driven by both volumes and freight rates, should allow the Group to further significantly improve its operating margin compared with the second quarter.”

- Shipping expected to be significantly better in Q3 20 vs Q2 20. Also, Q3 20 could be better than Q3 19.

- FY 2020 results to be above FY 2019.

- Volumes decline for 2020 expected at -3% to -5% yoy, which implies a significant recovery in 2H 20.

- CEVA cost reduction benefitted from both structural cost cutting measures and temporary staff cost reductions. For Shipping, the impact was mostly from structural cost cuts initiated last year.

- Will engage with rating agencies following the results, taking into account their much more conservative estimates for CMA CGM vs the realized for 1H 20.

- Shipping capex in 2020 to be closer to EUR400m than the previously guided EUR300m, as the crisis abates and the need to preserve cash becomes less acute.

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

Juliano