Throughout H1 21, Getlink was impacted by the pandemic, pre-Brexit stockpiling, and stricter border control, yet it managed to achieve a high shuttle yield while maintaining market share and deliver €45m in opex savings. The group has not provided a financial outlook for the full year given the low short-term visibility on traffic.
Companies: Groupe Eurotunnel (GET:EPA)Getlink SE (GET:PAR)
No surprises, Getlink announced weaker Q1 21 results, with revenue down 33% yoy. Shuttle revenue was impacted by travel restrictions, pre-Brexit stockpiling in FY20, and by border control introduced in 2021. Railway Network revenue was down 51% due to travel restrictions still in force. Traffic at Eurostar was down by 95%. Europorte continued to show resilience with sales up by 4%. The result was quite in line with our expectations; hence, we will not make substantial changes to the model.
Getlink announced 2020 bottom-line figures below our expectations. It saw a sharp decline in traffic, with the drop in truck shuttle traffic less profound than others due to the robust demand for essential goods and Brexit-driven stockpiling. It has delivered €40m in cost-savings and has introduced a split in the functions of the CEO and the Chairman.
The group has provided no outlook for FY21 and has proposed a dividend payment of €0.05/share.
Eurostar, the train operator that runs services through the Channel Tunnel, has shrunk from a cheetah to an ailing cat. The company is struggling for survival and is currently negotiating with the British government for a bailout, but the most likely outcome from this negotiation will be a no. Since Eurostar is a major user of the Channel Tunnel, Getlink could see a ripple effect and, hence, we have narrowed down a couple of possible scenarios for Eurostar going forward.
Companies: Getlink SE
Getlink has announced Q3 revenues and traffic which are better than the analysts’ consensus and our expectations. Truck shuttle traffic and the Europorte business showed significant resilience, while the car shuttle enjoyed disproportionately higher revenues due to flexible tickets and late bookings. Getlink has withdrawn its guidance for the full year and expects a positive response from IGC as the next step for its ElecLink business.
Getlink has published its H1 20 results, with EBITDA below our expectations and net income in negative territory. However, it has managed to have good liquidity with positive FCF, the DSCR ratio in a safe spot, and no significant debt service obligations until late 2021. The group has provided an outlook of €350m for EBITDA in 2020 and scrapped its 2022 objectives.
As expected, Q1 revenue was down by 9% on a lfl basis due to the SNCF strike in January and the lockdowns in March. Getlink observed a significant decline in traffic, with the drop in shuttle traffic concentrated towards the end of March. Europorte’s revenue was down by just 5%, mostly due to the SNCF strike. Getlink has discarded its previous 2020 outlook. The Q1 performance has so far been in line with our assumptions, hence we will keep our target price unchanged.
The FY19 results were flat, even in a tough macro environment. However, there was a significant improvement in the net profits (+20%) due to a one-off benefit from the settlement between DfT and Eurotunnel. The group has proposed a dividend of €0.41/share and below the 2022 target, but hopes to increase it by €0.05/year. The 2020 EBITDA target is just +€20m compared to 2019’s level, but is expected to exceed €735m in 2022, following the entry into service of the ElecLink electricity interconnect
In view of the contraction in Truck Shuttles, it seems fair to say that the UK economy is also contracting. This is a bad for Getlink.
On top of this, the lack of communication about safety issues on the ElecLink project is a yellow flag.
Overall, we expect to maintain our negative recommendation due to the pending risks.
EBITDA is down by 2% in H1 19. Getlink sees 2019 EBITDA at €560m as the most likely scenario.
What is somewhat worrisome is that the company is expecting some 2% decrease in EBITDA for only two months of a no-deal Brexit.
As, in our opinion, this reduction in the EBITDA guidance for FY19 is nothing else than a hidden profit warning, we expect to decrease our target price by some 5% and switch back to a Reduce recommendation.
The trading update for Q1 19 was good but posting a better performance should have been possible.
Overall, one quarter is too short to draw a trend for the FY and, with no information about profitability, we will leave our forecasts near enough unchanged.
Getlink, owner of Eurotunnel, raised more than half a billion euros in debt last year to fund the building of the interconnector, namely a power cable drawn through the tunnel but management did not warn investors it no longer had full consent for the project because of safety concerns.
All the key figures are above guidance. The current political situation, particularly in the UK, is likely to generate uncertainty about the short-term impact of the exit from the EU on 29 March 2019. Management’s key message was that the company is as well prepared as it can be.
In view of the EBITDA guidance for FY19, we will have to moderately decrease our target price.
The share price has posted an almost 10% increase since the beginning of the year. Here we seek to understand why this is so and why there is a high probability that the price will continue to appreciate, despite the Brexit uncertainties.
Despite the fact that the tunnel opened some 25 years ago, the capacity utilisation was a mere 58% in 2017, meaning that there is strong room for organic growth. Finding ways to increase this utilisation rate is key for Getlink’s business model as, with higher utilisation and because of high fixed costs, the operating leverage improves significantly.
Following this trading update, which gave no real hindsight below the top line, we expect little change to our valuation model.
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