Modulaire (Algeco) – model update and comments
All,
Please refer to our updated analysis here.
We have upgraded our model to reflect a better bottom-up granularity of revenues and improved working capital estimates. We have also updated our projections for the Q3 20 numbers.
We currently have a long position on the USD8% 2023 bonds, which we entered on 4 Jun 20. Considering the strong performance of the company and the resilience of the sector as a whole to the Covid shock, we see little risk at the secured part of the capital structure. We would be in no hurry to exit it given the generous coupon, which we would like to clip for as long as possible.
We also see the capital structure overall as sustainable. The existing EUR259m cash pile, which is likely to be used to acquire further EBITDA, and the current strong organic trends, should be enough to bring Algeco’s back into FCF positive territory on a post interest basis. Capex is a bit below what we estimate as replacement levels, which is in line with the company’s own view. But we see the flexibility to sweat these assets a bit more for a few years (think of Loxam in 2020) as a major part of their underlying credit resilience.
While it is too late to enter the USD10% 2023 unsecured bonds, we would consider entering a new refinancing deal at the unsecured level, if documentation were to be tidied up significantly.
Feel free to reach out if you would like to exchange ideas on the name.
Juliano
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E: jtorii@sarria.co.uk
T: +44 203 744 7055