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CMA CGM S.A. is a French container transportation and shipping company. It is a leading worldwide shipping group, using 502 vessels to serve more than 420 ports in 160 different countries, ranking fourth behind; Maersk, MSC and COSCO. In 2019, CMA’s vessels carried 21.6 million TEUs (twenty-foot equivalent units) while handling more than 0.4 million tons of airfreight and 2.4 million tons of overland freight.
To further strengthen its business, and its offering, CMA CGM undertook several acquisitions in recent years, namely; Singapore-based NOL (Neptune Orient Lines) and its container line APL (American President Lines) and CEVA Logistics; a global logistics and supply chain company in both freight management and contract logistics.
Credit Opinion: SPECULATIVE BUYCountry: FRANCESector: INDUSTRIALS- TRANSPORT
Credit RatingS&P: B-Moody’s: Caa1
Source: CCIM* LTM figures as at 31.03.2020
We believe that CMA CGM is well positioned to continue delivering, and live-up to their commitments. We like the fact that the company managed to sail well the heightened uncertainties brought about by IMO 2020, and the unprecedented Covid-19 pandemic. Indeed, management capacity proved crucial in mitigating revenues pitfalls despite a decline in volumes, while EBITDA showed signs of improvement due to lower bunker costs and cost-cutting initiatives.
From an industry perspective, positive signs emerged following capacity adjustments, through the implemented blanked sailings by CMA CGM as well as the industry. The latter kept freight rates stable, which typically are very sensitive to demand, above last year’s levels. Consequent to the drop in oil prices, and thus bunker costs which constitute a high operational expenditure for all shipping players, the spread between freight rates and bunker costs widened, allowing for better profitability margins.
More interesting is the fact that despite blanked sailings reached their scheduled peak in the month of April, alike other alliances that enable slot-sharing and vessel-sharing agreements, Ocean Alliance comprised of: CMA CGM, OOCL, Cosco Shipping, and Evergreen, reduced blanked sailings at the fastest pace. The fact that blanked sailings are now declining and heading towards normalized industry levels, bodes well, portraying higher demand and thus increased vessel capacities.
More specifically to CMA CGM, the company holds benevolent liquidity levels given the successful conclusion of the $2.1Bn liquidity plan along with the €1.05Bn syndicate loan, 70% of which is guaranteed by the French State. The said liquidity levels strengthened CMA CGM’s cash position, thus enabling them to confront uncertainties posed by the unprecedented Covid-19 pandemic and alleviating short-term pressure on the company’s liquidity.
We also view the possiblity of the bond being called if market dynamics permit, as the company will seek to extend its maturity ladder. That said, buying at the current market levels would still result in a benevolent capital appreciation in the short-term.
In conclusion, when considering forward looking industry metrics, we see a clear positive trend which we believe should reflect positively in the upcoming 2Q results, set to be published on 4th September. Furthermore, we believe that the cost savings exercise, the management’s capacity and above all, the current liquidity levels are supportive elements which should aid the company going forward. Thus given the said improvement at both sector level and the idiosyncratic element, we are shifting CMA CGM from a ‘HOLD’ to a ‘SPECULATIVE BUY’.
* Mid-Price and YTM as at 26.08.2020
Source: Drewry Shipping Consultants Ltd – Cancelled Sailings Tracker, CCIM
Source: Bloomberg, CCIM
* PGE (Prêt Garanti par l’État): State Guaranteed Loan
Source: CMA CGM 1Q 2020 Results, CCIM
1 Cancelled sailing or a blanked sailing is a shipment that has been cancelled by the carrier. Cancellations typically involve a vessel skipping one port or the entire string. By reducing supply through blank sailings, shipping corporations manage to compensate for the drop in demand for shipments, this preventing the freight rate from dropping.
2 IMO 2020 is an environmental-related regulation enacted to reduce the environmental impact posed by emissions released from vessels, burning fuel containing a high level of sulphur content.
3 Albeit stressing that there was no need for such aid, Robert Yildirim, now having a 24% shareholding in CMA CGM after pumping $600m into the French group in 2010 and 2011, voiced firm support for the French group, stating that he would “of course” pump more money into the group if required. Moreover, in an interview, Michael Sirat discussed the possibility of a part-sale of CEVA Logistics.
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Calamatta Cuschieri Investment Services Ltd is licensed to conduct investment services business under the Investments Services Act by the MFSA and is also registered as a Tied Insurance Intermediary under the Insurance Distribution Act.
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