e-Dreams - Still funded by Refunds
All,
Please refer to our updated analysis here.
Bookings had picked up in December, but are down again even more in January and February following further lock-down restrictions in December.
During Q3 (Dec.) however, bookings had not picked up as quickly as we had anticipated and also the movement further down again is stronger than we had only recently thought likely. So its as a direct consequence of lower bookings (mostly volume driven, but also ticket price) that EBITDA is at E-10m for the quarter, as SG&A were right on target.
WC Inflow:
- The company posted a surprising working capital inflow of €29.9 million. The deviation to our model primarily relates to the position of payables where a position of E50m of refunds payable has built up. This is cash returned from Airlines to e-Dreams, which e-Dreams have to return to the customer, but which admittedly takes some time to do as airlines only send aggregate payments without specific remittance advice.
- Following the initial phase of lock-downs cancellations had dropped and we imagined that this position would be absorbed within Q3 and Q4. Instead, governments relaxed the 80% of slots rule for airlines, which has resulted in a second wave of cancellations. The refund position therefore remains elevated and the outflow we had anticipated has not occurred.
Pent-up demand:
- European holiday bookings remain at record levels on a forward basis, largely due to rescheduled bookings from 2020. However, e-Dreams have first hand data suggesting at significant 20% increase in Europeans willing to take a trip during April-June 2021. Also, the company reports spikes in bookings of 90 days ahead or more (summer bookings) following government announcements of road-maps to ease the lockdown situation.
Rise in online searches for tourism flights - mostly in summer:
We remain long the bonds, although now that they have risen to 98c/E we will be adding them to our exit list at some point.
Wolfgang
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E: wfelix@sarria.co.uk
T: +44 203 744 7003