All,
CMA CGM had a positive Q1 20 call. The expected 10% shipping volume decline in 1H 20 vs 1H 19 is even better than the relatively reassuring comments issued by Maersk (20-25% volume decline for Q2 20 specifically). CMA CGM also confirmed the previous message from Maersk that rates held up well vs bunker costs in Q1 20, which confirms our view that the industry is in a very different position vs 2009. Together with the liquidity boost of the previously announced EUR1.05b state backed loan, the company is now confident enough to announce a partial buyback of the 2021 notes.
Position:
We are long the 21s and we are looking at the 22s. We will reassess after incorporating the new information into our model.
Key takeaways:
- EBITDA was up yoy in Q1 20 thanks to cost cutting and good rates vs bunker margins.
- EBITDA in 1H 20 to be higher than 1H 19.
- Volumes in shipping down 4.6% yoy in Q1 20.
- Additional secured debt capacity confirmed at EUR400m plus the remaining terminals. Management is not planning new measures as it sees no need given its strong liquidity position.
- Company would have some additional room for more of the state backed loan but sees no need at this point.
- Management still does not see the bonds as trading at the right levels. Bond buybacks for the 2022 and 2025 bonds remain an option following the partial 2021 buyback.
- Q2 20 to be the trough of the year in terms of volumes, with a recovery expected in Q3 and Q4, despite some lagged impact from the virus into later quarters.
- Industry discipline on blank sailings to offset weaker volumes held up well so far into the year, and management does not expect it to break down going forward.
- Cash in Lebanon mostly moved out of available cash into restricted cash, in line with our modelling.
- Disposal proceeds from India (EUR153m+EUR85m) to be delayed as a result of longer than expected regulatory approvals. Now expected in June or early July.
- Ceva was more impacted than shipping, but recovery plan still on track excluding the impact of the virus.
Please feel free to reach out if you would like to exchange ideas on the name.