Carlson Travel Inc (CWT) – Filling the capital tank
All,
We are initiating on CWT. Please find our analysis here.
CWT is close to the definition of a COVID recovery play. But what are the economics and how can we position ourselves? The shutdown of all but critical business travel and the delays in the vaccine rollout created a brutal market environment. However, as travel returns the size and nature of working capital moves make understanding cash flow risks a critical challenge. The balance sheet is already debt-heavy, and more cash is needed imminently.
CWT is a privately held Travel Management Company. It brokers travel services from airlines/train companies/Hotels and other travel suppliers to corporate clients. Around half its fee revenue comes from its clients with the rest coming from suppliers. Clients range from SMEs to global corporates and governments.
CWT raised fresh capital and debt in July and December 2020 as delays in a return to normality left the company burning cash for longer than anticipated. As travel slowly returns towards normality a USD137m cash inflow from working capital in fiscal 2021 is now rapidly reversing, whilst losses continue to rack up. With the seasonally low volume summer approaching and bookings still struggling, our expectation is that the company’s RCF will be fully drawn in the next months and that fresh capital is required quickly.
Given the level of debt outstanding, our thesis is that there is a limited potential opportunity in the Third Lien notes subject to them being part of a holdout group big enough to have a blocking stake, willing to provide fresh cash, and be equitised as part of returning CWT to a sustainable capital structure.
We are looking forward to exchanging ideas on CWT with you.
Aengus
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E: amcmahon@sarria.co.uk
T: +44 203 744 7055