e-Dreams - On Working Capital, Operating Leverage and Value

All,

Please find a more detailed analysis of e-Dreams here. 

The company records revenue only on a net basis, which means the large negative WC will likely melt more quickly than in ordinary businesses. But it is also uniquely positioned in having - usually - less Opex than EBITDA. 

We expect the large RCF to be fully drawn by now and the next presentation will be very ugly. But even if payables go to zero and the company makes zero Gross Margin all summer it has enough liquidity.

Importantly: 

The company can survive some 2-3 quarters on zero Gross Margin (and may have to) without adding more than a turn of leverage when its all over. That is because of its relatively flexible total cost structure. The market is valuing e-Dreams at 3x 2019/20 EBITDA on the basis that the RCF is fully spent. (already below normalised EBITDA). When the gyrations are done and the WC is re-built, these bonds will likely be 4x levered through par (on a normalised - then forward looking basis).

Wolfgang