Loxam - Comments on preliminary Q2 20 update

All,

Loxam released a preliminary trading update for Q2 20. The release generally confirms our view of the relative resilience of the business under the current environment. Revenues were down -25% yoy on a constant perimeter/FX. The release also notes a gradual sequential improvement from April to June, and expectations of continued momentum into Q3 20, with reported net debt/EBITDA rising to 5.2x from 4.7x at YE2019. We see this as positive, especially for the subordinated bonds, which are currently trading in the low 90s. 

 Key takeaways:

- Revenue contraction at constant perimeter/FX at -25% yoy in Q2 20. April -39%, improving to only -7% in June. This leaves 1H 20 revenues at -17% yoy.

- Loxam expects continued recovery in 2H 20, noting the expected positive impact of stimulus measures on the construction sector.

- Q2 20 saw positive FCF thanks to the reduction in capex and opex. FCF in 1H 20 to be EUR+150m, with cash and equivalents are more than EUR800m at the end of June 20.

- Loxam sees continued positive FCF in 2H 20 despite the expected negative working capital variation, with net debt falling over 2020. 

- net debt/EBITDA rose to 5.2x in 1H 20 from 4.7x at YE 20 on a reported basis.

- Management is considering several options, in light of its significant liquidity position, which could include bond buybacks and partial or full redemption on certain tranches.

- Management notes that results are scheduled to be released on 25 Aug after the market close, with the call scheduled for 26 Aug at 11am CET.

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

Juliano