Europcar - Hmmmm...

All,

Please refer to our updated analysis here.

It’s a small update on paper. Our initial estimates have not been far off, and we’ve sent the updated recapitalisation table in our last email. The analysis now reflects the currently discussed deal.

Positioning:

We retain our small 2% of NAV position in the EC Finance bonds but are having thoughts about re-entering the bonds after all. Since we sold in this zip-code, bonds dropped less than we had expected and the proposed plan exceeds our expectation. The RCF is under control and markets have been vaccinated faster than humans. So for the same money, we are certainly buying a brighter outlook.

While buying the bonds here means owning the future equity of the company (behind moderate corp. leverage), that equity should have significantly more upside than downside. Certainly, in comparison to other Covid riddled names, Europcar bonds are trading at sensible 8x our 2-year forward EBITDA and 4.5x management’s - post cash. That sounds like a lot (is a lot), but 2022 EBITDA should still have plenty of growth in it and so valuation should significantly exceed 8x by then. The same multiple today therefore does imply a significant discount for the extra year forward. Meanwhile, the proposed restructuring offers a number of opportunities to invest cash elsewhere at likely attractive levels and despite amendments, we are confident that the consents will be obtained.

The check:

Europcar has lost 2bn of market value since the beginning of the year - taking into account the fresh cash need. Surely the company will see lower demand and footprint will have to be right-sized, but not by 40%. The pandemic gives the company the room to restructure its ill-timed cost commitments of 2018/19 and even if held by unnatural holders, shares should double in the next two years.

Wolfgang