CMA CGM Memo 131119

CMA CGM. How To Navigate CMA CGM
PUBLISHED: 13 November 2019
PAGES: 141
SUBMARKET: CMA CGM, Hema, Top Reports, Top Reports,


Why Read?

  • Understand how to look at valuation in the sector using a variety of valuation frameworks given differences in IFRS 16 capitalization of leases across firms and differences in adjusted net leverage measured under IFRS 16 vs IAS 17
  • Understand CMA CGM’s sensitivity to Transpacific volumes and freight rates and consequently to the US – China trade war
  • Understand the potential for CMA CGM to IPO and / or for Yildirim to sell its 24% stake in CMA CGM and provide a concrete data point on the equity cushion supporting senior unsecured bondholders
  • Understand how cost savings and the CEVA acquisition have the potential to provide significant mitigation of trade war risks 
  • Understand the potential liquidity options available to CMA CGM and prospects for asset sales
  • Understand container shipping and CMA’s competitive positioning within it
  • Understand CMA’s valuation sensitivity to freight rates, volumes and bunker fuel cost
  • Understanding CMA’s exposure to bunker fuel price fluctuations and the implications of IMO 2020
  • Understanding the existing ownership structure and their commitment to the long term future of CMA

What’s New?

  • Understanding what happened in CMA CGM’s previous debt restructurings and whether this time is different
  • Deep dive on the relative importance of the Logistics business within CMA CGM
  • Deep dive on performance metrics (cash flow analysis; EBITDAR / EBITDA / cash EBITDA margins through the cycle; fleet comparison) across the sector and in particular CMA CGM vs Maersk and Hapag Lloyd
  • Deep dive on FCF and unleveraged FCF to understand cash generation capacity of CMA CGM and understand sector valuation
  • Determine the ability of CMA CGM to continue operating in the absence of additional financing
  • Valuation sensitivity analysis – understanding impact of working capital, volumes, freight rates and bunker fuel

Questions Answered

  • CMA CGM has benefitted from a $1bn cost savings programme in 2017; the NOL acquisition in 2016 with IAS 17 Adj EBITDA of c. $0.3bn at the time plus $500m synergies targeted by 2018; the CEVA acquisition in 2019; and a further $1.2bn cost savings programme in 2019. Yet Adj EBITDA has not progressed. Where has the benefit gone?!
  • If we stress [revenue minus operating expenses excluding leases] per TEU down to the levels of the difficult 2016 period, shock volume growth down to zero and revenue per TEU back towards all-time lows, can CMA CGM survive?
  • How has CMA CGM’s debt been restructured in the past? If needed, would it be restructured in the same way again and how could this be complicated by a need for new money?
  • Will Yildirim sell its 24% stake in CMA CGM, for what price and will there be an IPO?
  • How big is the equity cushion protection senior unsecured bondholders? IFRS 16 EV / EBITDA peer multiples; IAS 17 lease-adjusted EV / EBITDAR peer multiples; transactions (including CMA CGM’s own acquisitions and investments by Yildirim and Bpi France into CMA CGM); Everest DCF 
  • What options does CMA CGM have to strengthen liquidity, particularly in the stress case?
  • Why have CMA CGM’s cash EBITDA and cash EBITDAR margins gone from industry-leading to significantly squeezed since 2017 (relative to Hapag Lloyd and Maersk)
  • How high could CEVA’s Adj EBITDA and transformation / synergies together with CMA CGM’s own $1.2bn cost savings programme take CMA CGM’s Adj EBITDA?
  • Will CMA CGM be able to refinance its 2021 senior unsecured bonds?
  • How much of an issue is the 2020 IMO regulation on low sulphur bunker fuel for CMA CGM?