Loxam Q1 20 results - countercyclical FCF

All,

Please find the updated Loxam model for Q1 20 results and call here.

The call was positive and Q1 Sales beat expectations, as does guidance for Q2.

As per our model, Loxam’s FCF counter cyclicality in periods of severe revenue contraction once again reasserts itself in H1 20. 

With Q1 20 results and call coming out better than expected, we continue to consider a long position on the subordinated notes.
 
We are reassured by the company’s progress to date on liquidity. At the same time, Loxam’s more internationally diversified profile has mitigated some of the worst impact from its domestic French footprint. We estimate the worst is over for the company, and that construction should pick up strongly, at least in the short term, as builders focus on finalizing the projects already stared. The medium term impact is still uncertain, as the company admits.

Key takeaways:
- Revenue contraction at constant perimeter/FX at -9% in Q1 20, which we believe was better than the conservative estimates of most investors, including ours.
-Resilient EBITDA margin at 30%.
- Company is successfully extending financial leases and bilateral lines amortizations for 6 months, so far.
- Expects to be FCF positive for FY2020, although with a negative Q3 20 as working capital deferrals from Q1 and Q2 work their way.
- Second hand equipment sales have seen no slowdown in terms of volumes or prices so far. Management noted that some buyers are shifting from brand new equipment to used equipment, supporting the market.
 - Expects most construction clients to finalize the construction they already started, from their experience of pervious crises. Impact on new construction to be observed only around 18 months, but notes potential offset of government stimulus spending.
- Confirms that the RCF covenants have been suspended, next test to be on 30 Jun 21.
- Refuses to provide annual EBITDA guidance given remaining uncertainties.
- Notes May revenues down only 25% vs the 40% of April, as the lockdown gradually eases and activity continues to pickup.
 

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