CMA CGM – comments on roadshow call and Maersk guidance upgrade
All,
Please find our unchanged analysis here.
The lower than last time excess container shipping capacity was, of course, the centrepiece of our positioning in April and so the issuance of a new bond to take out the 21s comes at no surprise.
The transaction:
The new bonds will be pari passu with the existing 2022 and 2025 unsecured bonds. So events including the new bond issuance have been widely anticipated for some time. On cash uses, management sees no need to retire the 2022 bonds for now, given the call premium. The 2021 bonds had already been partially retired and they will be fully retired via a call at 100. This will have little price impact as the bonds were already fully reflecting this development given the combination of abundant cash reserves and improved EBITDA and FCF. The NOL bonds will be repaid with cash as they come due. Other uses of cash going forward will be other debt retirement (ie secured facilities) and container acquisition, (which the company sees?) as a liquid and stable asset.
Road Show:
Volumes are expected to be up in 2H 20 vs 2H 19, which also shows the growing divergence between the goods and the services component of the global economy.
The roadshow call has shown CMA CGM’s renewed confidence following the decent results of the past three quarters. Management now sees full-year 2020 pre-IFRS EBITDA at over the levels of 2017 (USD2bn), and Capex at USD500m including the EUR50m spent on the acquisition of a minority stake in Dubreuil Aero. For cyber attack, management notes that the systems are fully back online since Sunday 11 Oct, and the initial impact on EBITDA is estimated at USD50-80m, before potential insurance coverage (hence final net amount should be lower). This is much lower than the USD300m loss experienced by Maersk for a similar cyberattack, which was our previous reference data point, and is probably better than expected.
Most of the presentation touched on the very parameters underlying our own analysis, including: low bunker prices; resilient freight rates; significant changes in the structure of the industry since 2009 including consolidation, alliances, order book and competitive dynamics; substitution of air freight for sea shipping due to the lack of “belly cargo” capacity, and successful IMO 2020 transition.
Also this morning, CMA CGM saw a further tailwind as Maersk upgraded its EBITDA guidance for 2020 to USD7.5-8bn from USD6-7bn previously. Q3 20 volume declines are seen at -3% yoy, slightly better than the “mid-single-digit” guidance.
Positioning:
We retain our long position in the 2021 and 2022 bonds for 6% of NAV, but are looking to redeploy the cash from the 21s now.
As always, feel free to reach out if you want to exchange ideas on CMA CGM.
Juliano
________________________
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