Senior Credit Analyst, Lucror Analytics

Leonard Law, CFA

Senior Credit Analyst

High Yield Experts

Lucror Analytics

Lucror Analytics is a leading credit and ESG research specialist and a provider of technology solutions for differentiated fixed income strategies. Our roots are in bottom-up fundamental credit analysis with a specialization in high yield corporate credits from Europe, Asia and Latin America. We are one of few research specialists integrating ESG considerations with fundamental credit research through a dedicated ESG platform. Our ESG assessment covers five key criteria: Disclosure, E,S, & G Pillars, Controversies, ESG Impact on Credit and ESG Momentum.

Recognizing the importance and value-add of Factor Investing in fixed income, Lucror developed the Smart Quant Navigator (SQN), an intuitive platform that helps clients devise and implement factor-based strategies ranging from pure quant to active fundamental, with integrated ESG.

Our company has been at the forefront of developments in the fixed income markets, identifying opportunities and consistently delivering new products and value-adding solutions to clients. Lucror has close relationships with the largest and most reputable asset managers, family offices, hedge funds, investment and wealth managers globally.

Credit

The Europe HY Trade Book for September 2021 includes high-conviction trade ideas drawn from our European HY coverage universe, along with relative-value scatter plots and tables by industry.

  The Europe HY Trade Book for September 2021 includes high-conviction trade ideas drawn from our European HY coverage universe, along with relative-value scatter plots and tables by industry. 

Europe HY Trade Book - September 2021 - Lucror Analytics

The Europe HY Trade Book for August 2021 includes high-conviction trade ideas drawn from our European HY coverage universe, along with relative-value scatter plots and tables by industry.

  The Europe HY Trade Book for August 2021 includes high-conviction trade ideas drawn from our European HY coverage universe, along with relative-value scatter plots and tables by industry. 

Europe HY Trade Book - August 2021 - Lucror Analytics

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

In my previous insight <a href="https://www.smartkarma.com/insights/europcar-is-again-on-the-driving-seat" target="_blank" data-smartkarma-citation="insights:53577" rel="noopener">Europcar Is Again on the Driving Seat</a>, I recommended Long Europcar (TP €0.58, DCF based).
On 28 July, a consortium led by <a href="https://www.smartkarma.com/entities/volkswagen-ag-pref" target="_blank" data-smartkarma-citation="entities:734:1" rel="noopener">Volkswagen (Pref) (VOW3 GY)</a>, together with Attestor fund and Pon Holdings transport group, entered a tender offer support agreement setting T&amp;Cs for the acquisition of <a href="https://www.smartkarma.com/entities/europcar-mobility-group" target="_blank" data-smartkarma-citation="entities:21457:1" rel="noopener">Europcar Mobility Group (EUCAR FP)</a>.
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The offer is €0.50/share (vs. € 0.44/share on the offer discussed in June, c. 14% higher).
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The premium compared to the prior closing is c. 3% and implies valuing the group at around €2,500 mn. Volkswagen's intention is to regain a controlling stake in Europcar (Volkswagen sold Europcar in 2006 for €3,300 mn).
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There is a potential price supplement of €0.01 if a 90% squeeze-out threshold is reached by the deal's completion.
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The Board of Europcar "favourably welcomed" the planned deal.
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This deal is highly likely to close, in my view. Gross spread (to €0.51, including the success payment) is 2.4%, c. 4.7% annualized, assuming deal closes in 6 months. Recommendation is long EUCAR FP.
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In my previous insight Europcar Is Again on the Driving Seat, I recommended Long Europcar (TP €0.58, DCF based).
On 28 July, a consortium led by Volkswagen (Pref) (VOW3 GY), together with Attestor fund and Pon Holdings transport group, entered a tender offer support agreement setting T&amp;Cs for the acquisition of Europcar Mobility Group (EUCAR FP).


The offer is €0.50/share (vs. € 0.44/share on the offer discussed in June, c. 14% higher).


The premium compared to the prior closing is c. 3% and implies valuing the group at around €2,500 mn. Volkswagen's intention is to regain a controlling stake in Europcar (Volkswagen sold Europcar in 2006 for €3,300 mn).


There is a potential price supplement of €0.01 if a 90% squeeze-out threshold is reached by the deal's completion.


The Board of Europcar "favourably welcomed" the planned deal.



This deal is highly likely to close, in my view. Gross spread (to €0.51, including the success payment) is 2.4%, c. 4.7% annualized, assuming deal closes in 6 months. Recommendation is long EUCAR FP.


The Europe HY Trade Book for July 2021 includes high-conviction trade ideas drawn from our European HY coverage universe, along with relative-value scatter plots and tables by industry.

  The Europe HY Trade Book for July 2021 includes high-conviction trade ideas drawn from our European HY coverage universe, along with relative-value scatter plots and tables by industry. 

Europe HY Trade Book - July 2021 - Lucror Analytics

On 23 June, Bloomberg reported that <a href="https://www.smartkarma.com/entities/europcar-mobility-group" target="_blank" data-smartkarma-citation="entities:21457:1" rel="noopener">Europcar Mobility Group (EUCAR FP)</a>  rejected an expression of interest for a potential takeover from a consortium led by <a href="https://www.smartkarma.com/entities/volkswagen-ag" target="_blank" data-smartkarma-citation="entities:21738:1" rel="noopener">Volkswagen (VOW GR)</a> earlier this month. The offer was pitched at €0.44/share, for an implied equity value of c. 2,203 mn and a 12% premium to the closing share price on 22 June.
Europcar rejected the offer on the grounds of failing to "reflect the company's full value and value creation potential". Europcar added that "further discussions may take place, which the company does not intend to comment, unless required by law".
On 24 June, Volkswagen confirmed that it is considering acquiring a majority stake in Europcar, along with investors Attestor and Pon Holdings.
Akin to a vertical integration, VW seems interested in Europcar's infrastructure (convenient existing locations typically in city centres and airports), fleet management capabilities, and technology for mobility services solutions.
Not all of Europcar's woes are Covid 19-related. Increasing competition from the likes of Über, pay-per-use and car-sharing mean that the shares had already been drifting since July 2017. The situation worsened with the pandemic. As per S&amp;P MI, on 26 February, Europcar announced that it completed a debt restructuring. After a debt-for-equity swap, bondholders Anchorage Capital and Marathon AM became the top shareholders.
Europcar financial situation is improving, driven by vaccination campaigns and the progressive easing of travel restrictions, compounded by the desire to spend in travel. Hire rates are increasing: there are now less cars available to hire, due to cuts in large fleets, while OEMS are reducing production due to lack of semiconductors, therefore replacements will not arrive soon enough to cover an increasing demand.
Car hire is akin to a retail business. Companies acquire large quantities of stock at a discount from OEMs to resell them after a period of time (either under repos with OEMs, sale &amp; leaseback, or to the general second hand market). Rentals represent an additional margin. Key success factors are the right capital structure and depreciation rates (final vs initial vale of the stock, which must be reduced as much as possible, plus there is a continuous struggle against obsolescence). Therefore, the best valuation method is DCF.
From my calculations, fair value is €0.58/share, which implies a 19% upside. Terminal EV/EBITDA multiple is similar to that of Localiza.
Volkswagen has cash &amp; equivalents for an amount of €44.5 bn, vs. a market cap of Europcar of €2.4 bn. Volkswagen seems right in its strategy to pursue an easily digestible Europcar, but surely does not want to overpay. Recommendation is speculative buy.

On 23 June, Bloomberg reported that Europcar Mobility Group (EUCAR FP)  rejected an expression of interest for a potential takeover from a consortium led by Volkswagen (VOW GR) earlier this month. The offer was pitched at €0.44/share, for an implied equity value of c. 2,203 mn and a 12% premium to the closing share price on 22 June.
Europcar rejected the offer on the grounds of failing to "reflect the company's full value and value creation potential". Europcar added that "further discussions may take place, which the company does not intend to comment, unless required by law".
On 24 June, Volkswagen confirmed that it is considering acquiring a majority stake in Europcar, along with investors Attestor and Pon Holdings.
Akin to a vertical integration, VW seems interested in Europcar's infrastructure (convenient existing locations typically in city centres and airports), fleet management capabilities, and technology for mobility services solutions.
Not all of Europcar's woes are Covid 19-related. Increasing competition from the likes of Über, pay-per-use and car-sharing mean that the shares had already been drifting since July 2017. The situation worsened with the pandemic. As per S&amp;P MI, on 26 February, Europcar announced that it completed a debt restructuring. After a debt-for-equity swap, bondholders Anchorage Capital and Marathon AM became the top shareholders.
Europcar financial situation is improving, driven by vaccination campaigns and the progressive easing of travel restrictions, compounded by the desire to spend in travel. Hire rates are increasing: there are now less cars available to hire, due to cuts in large fleets, while OEMS are reducing production due to lack of semiconductors, therefore replacements will not arrive soon enough to cover an increasing demand.
Car hire is akin to a retail business. Companies acquire large quantities of stock at a discount from OEMs to resell them after a period of time (either under repos with OEMs, sale &amp; leaseback, or to the general second hand market). Rentals represent an additional margin. Key success factors are the right capital structure and depreciation rates (final vs initial vale of the stock, which must be reduced as much as possible, plus there is a continuous struggle against obsolescence). Therefore, the best valuation method is DCF.
From my calculations, fair value is €0.58/share, which implies a 19% upside. Terminal EV/EBITDA multiple is similar to that of Localiza.
Volkswagen has cash &amp; equivalents for an amount of €44.5 bn, vs. a market cap of Europcar of €2.4 bn. Volkswagen seems right in its strategy to pursue an easily digestible Europcar, but surely does not want to overpay. Recommendation is speculative buy.

France

Europcar Mobility Group provides passenger mobility vehicles rental services. The Company offers light commercial vehicles rental and sharing, ride hailing, and other mobility solutions. Europcar Mobility Group serves customers globally.

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Europcar Mobility Group (EUCAR FP)

Europe HY Trade Book - September 2021 - Lucror Analytics

The Europe HY Trade Book for September 2021 includes high-conviction trade ideas drawn from our European HY coverage universe, along with...

Lucror Analytics

Europe HY Trade Book - August 2021 - Lucror Analytics

The Europe HY Trade Book for August 2021 includes high-conviction trade ideas drawn from our European HY coverage universe, along with...

Lucror Analytics

VW Consortium/Europcar: Spread

This deal is highly likely to close, in my view. Gross spread (to €0.51, including the success payment) is 2.4%, c. 4.7% annualized, assuming deal...

Jesus Rodriguez Aguilar

Europe HY Trade Book - July 2021 - Lucror Analytics

The Europe HY Trade Book for July 2021 includes high-conviction trade ideas drawn from our European HY coverage universe, along with...

Lucror Analytics

Europcar Is Again on the Driving Seat

Volkswagen could easily digest Europcar, but does not want to overpay. Fair value is €0.58/share, a 19% upside. Recommendation is speculative buy.

Jesus Rodriguez Aguilar

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