CMA CGM - Q3 20 - strong sector momentum

All,

Please find our unchanged analysis here.

We are long the 2022 bonds with 2% of the NAV. The longer-dated 2025 and 2026 bonds have rallied over the past few weeks, reflecting the growing confidence on the momentum of the business. We will update our views over the next few days, after taking into account the new Q3 20 numbers and the results call.

CMA CGM’s results came out above our conservative modelled assumptions. The differential is mainly explained by the significant pickup in freight rates and volume momentum over the past few months. CMA CGM points out the strong momentum in terms of goods consumption across the world, to the detriment of services.

The outlook for Q4 20 is also positive, as CMA CGM sees further improvement of EBITDA margins in the quarter. This is due to strong momentum in volumes across the world, and especially in the US and Latin America, which means the fleet is fully utilized and freight rates remain high.

Liquidity remains strong at USD2.1bn. The difference between this figure and our USD3.5bn forecasted is mainly due to the company’s decision to repay debt. This suggests management is increasingly confident about the momentum of the business, and now sees lower interest costs as more important than keeping an oversized liquidity buffer.

Additionally, this retired secured debt was comprised of asset-backed loans, so this repayment opens room for future secured borrowing in the future if that became once again necessary to the company.

CMA CGM’s strong performance follows similarly Q3 20 results from Maersk and Hapag Lloyd over the past few weeks, which we discussed in our daily comments. Therefore, we do not think it will come as an absolute surprise to most investors.

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

Juliano

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