Loxam – HSS hire results confirm positive trends in equipment hire
All,
Please find our unchanged analysis on Loxam here.
HSS Hire’s trajectory was very similar to Loxam’s. A significant decline in revenues and EBITDA in Q2 20, due to the impact of the coronavirus, was more than offset by the significant working capital unwind and Capex reduction. The weekly trends, as shown in the charts below, also suggest a gradual recovery since the bottom in April/May. HSS is permanently closing 134 of its branches, which will result in 300 less staff. HSS notes that the coronavirus crisis has shown the need to move to a more digitalized, lower-cost equipment hiring system.
The results confirm our initial intuition that equipment rental would have a very different trajectory to the more travel-focused car rental sector. As we previously mentioned, this crisis has actually resulted in some of the strongest FCF generation of recent years in the equipment hire sector, as the discretion and countercyclicality of both Capex and working capital were once again demonstrated, similarly to 2009. HSS is more concentrated in smaller equipment. It is also much more dependent on the UK, a market that is known to have significantly lagged France and other European markets, both in terms of construction recovery, equipment rental and more generally in macroeconomic terms.
We see the path going forward for the equipment rental sector as more uncertain. There will be a necessary catch up in both Capex and working capital. The boost from the completion of unfinished projects will go away if new construction starts does not pick up.
A happy ending to this story is likely, as the significant liquidity reserves will shield the company through the recovery, with the European fiscal stimulus lifting construction in 2021, especially with regards to residential and infrastructure projects. However, this is already reflected in the price of the Loxam bonds, as they fairly price the upside of a stronger than expected recovery and the downside of potential disappoints. Hence, we are not inclined to take a position on Loxam.
Juliano
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Juliano Torii
2 Stephen Street
London W1T 1AN
E: jtorii@sarria.co.uk
M: +44 794 73 56 163 (preferred)
T: +44 203 744 7055