Loxam initiation

Dear All, 

 Please find the 1-pager here.

 - We have been looking at Loxam from a long perspective in the Subordinated EUR250m 6% 2025 bonds, at a price of around 71 (YTW 15%). Despite the severe revenue contraction the company is likely to suffer in Q2 20, we estimate that its significant liquidity measures, the usual countercyclicality of FCF in periods of crises (due to lower capex requirements and unwind of working capital), and the incentives of the banks and the French government in keeping the business float is likely to prevent a near term distressed scenario. At the same time, considering EV/EBITDA of peers on a  trailing 12 month basis, which are likely to be more useful than forward measures under the current context, we feel that the subordinated bonds are almost or even fully covered, which makes a 70-71 cash price theoretically attractive.

- We see only a tail risk of debt impairment for the senior secured bondholders, and therefore find their current trading levels of 88-94 (YTW 5-7%) as fair but not attractive.

 - Short term countercyclicality of FCF: Loxam, Cramo and other operators in the sector have in past crisis, such as 2009, seen a boost in FCF generation during periods of severe revenue contraction. This is because of the significant contraction of fleet capex, the result of lower and changing equipment utilization, and some working capital wind up.

 Any questions, please do not hesitate to contact me,

Juliano Torii