WFS - initiation

All,

 We are initiating on WFS. Please find our files here.

 Air cargo held up better and recovered quicker during the coronavirus crisis. While the reduction in "belly cargo" capacity has impacted the business, air cargo also benefitted from a significant increase of emergency demand both for key medical equipment and for certain key components. Some passenger planes were also converted to cargo planes in a hurry. Going forward, air cargo should provide WFS with a certain resilience to the extremely negative trends in air passenger volumes.

The Air Cargo and Ground Handling sectors have gone through a multi-year period of derating as global trade and globalization itself goes through a period of retrenchment. The previous high EV/EBITDA multiples, which incorporated significant above GDP growth, are unlikely to hold going forward.

WFS's problems preceded the coronavirus crisis. Even in 2018 and 2019, the business struggled as trade volumes remained under pressure, from the US-China trade war and more generally from the deglobalization trend that impacted most sectors that were geared towards global trade growth, including sea shipping (see our report on CMA CGM). WFS has become notorious in the high yield market for the large amount under EBITDA add backs, which led to poor correlation between adjusted EBITDA and underlying cash flow generation. As a result, WFS has been burning cash on an after interest FCF basis for years, even before the coronavirus issue.

We are looking forward to exchanging ideas on WFS with you.

Juliano