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Less Is More

30 May 2019 by jbchevrel

The Marseille-based shipping giant CMA CGM (ticker: CMACG, #4 global) underperformed the euro high yield CDS complex, with the 5y wider by 166bp, despite revenue growth. Q1 revenue came +37% YOY. That was helped by volume carried up by +4% YOY and higher revenue/container ratios, despite fleet capacity actually rose by +7% YOY. The efforts are poised to continue on the expense side of the income statement, with cost savings program increased from $1.2B to $1.5B. CMACG said it has already cut $245M in costs via rationalization of some its services, new supplier relationships, energy-reducing efforts and other operational efficiencies. Nevertheless, for the time being, CMACG posted a net loss of -$43M, while it had lost -$77M over Q1-2018. With EBITDA of $780M and net debt of $18B (just half of it if you exclude leases / the acquisition of CEVA effectively added $2.8B debt), leverage is actually a tad below 7x. Liquidity-wise, CMACG has roughly $2B, with cash on balance sheet standing at $1.7B plus they have $0.4B of undrawn facilities. The context of trade tensions still weighs on sentiment toward container shipping companies. The US and China have failed to make a deal and EU-US talks have not advanced. EU trade commissioner Malmstrom said she does not think the US is ready to start on the tariff negotiations. Nevertheless, CMACG expects to see further growth in its volumes this year, “regardless of the geopolitical climate” (CFO) as increasing activity from South East Asia towards the US. It is fair that the traffic between the US and South East Asia (China) could temporarily pick up, partly due to US importers anticipating further tariffs, which is what had boiled CMACG’s activity in the second half of last year.