Mobico - Recap Scenario - Positioning
All,
Please find our slightly revised IM here.
Following several conversations with you and having built a recap table, we concede that we may have been a little rushed in going short the Perps. Upon reflection, these subordinated hybrids may have a better negotiation position than we expected. We have therefore bought back the short leg and thus have also somewhat reduced the now unhedged long position. We have made no change to projections, and safe for an added recapitalisation table, all other analysis remains the same.
Investment Rationale:
- We are adjusting our recent positioning slightly on reflection over the size of pay-down that could be needed to A&E the Perps, which we now think could be higher than 10%. We are therefore preparing to sell 1% of our 3% of Equity when the price returns to £0.4, and we are buying back our short in the hybrids, as those could be more positively affected than previously assumed.
- The overall position will remain similarly bullish as before, but upon reflection, the short in the Perps was neither necessary nor well thought through.
- The RemainCo will look better than the market anticipates, and in the short term, we expect no negative news. By contrast, we could receive news out of Germany of a deal with PTAs that could partially restore the profitability of that segment.
- We expect the share price to return to £60p once Q225 and perhaps Q325 show how little impact the sale of the US Bus division will make on cash flows (positive if anything).
- We consider the debt stack (not Borrowing-Capacity-Covered, but) EV-Covered and estimate that the stock price before the US Bus announcement was more accurate than it is today. The largest businesses are thriving. The UK are turning around, and Germany might get half fixed by an agreement. Thus, we assess the trajectory of this business as overall positive.
- We have bought back the short in the Perps as on reflection, Mobico may have to offer more cash than we previously thought, providing the Perps with more upside.
New Key Conclusions:
- The Perps negotiating position in an insolvency situation would be weak, but insolvency is not on the menu. However, the threat of the stepped up coupon to the equity could prompt the company to go further than we thought to A&E a then smaller stub. Allowing a step-up or deferral of coupon are just too prohibitive considering the size of the £500m instrument.
- Upon receipt of the US Bus proceeds, anticipated in Q325, Mobico will have sufficient liquidity to address its Perps, which are stepping up in November '25/February '26. While funds will not suffice for a full paydown, we are confident the company can A&E of a stub Perp and have further excess funds available to tender for some of its 2027 PP commitments. Any pay-down of the Perps, however, will layer the bonds, which may or may not be fully offset with an overall solution of the situation (Recapitalisation Scenario).
Here to discuss this name with you,
Wolfgang
E: wfelix@sarria.co.uk
T: +44 203 744 7003
www.sarria.co.uk