Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
On your points:
1. With a robust capital structure I would agree that would be the case. Most businesses batten down the hatches to get through a weak period of demand. Market is however asking serious questions on how fragile the structure is at Travelex/Finablr given no one can know how long this might last. It could be over in a few months. Perhaps.
2. Cash in vaults etc is working capital - if the business was being wound down maybe .. but you would not consider this usable cash on a going concern basis. Otherwise what inventory would they have to generate revenue?
As for a refinancing bonds are at 50% of par with current yield of 16%. Bonds due May 2022 so fixed income investors can double their money in 2 years and clip an 8% coupon along the way.
Refinancing looks a tough ask in this environment, wold need to see signs that travel is at least starting to return to a more normal environment
As at 30 Sep 2019 £51.6m was already drawn down on that £90m RCF.
Its not just change of control as there are covenant tests that can trigger repayment.
3. Travelex and UAE Exchange do have relatively high fixed costs in the outlets they operate, both on and off airport. This is what comprises the majority of the leases brought on balance sheet under IFRS 16. Structured as mainly a fixed fee with some having additional payments based on passenger numbers and/or revenue. If airlines don't fly then don't pay fuel expense (one of their largest cost items). When passenger numbers are falling what can Travelex do? Close certain outlets ?
In terms of what the impact might be on airlines due to passenger numbers falling IATA have said this today:
"Airlines could lose $63 billion to $113 billion in revenue for passenger traffic globally in 2020, depending on how the coronavirus spreads. The $63 billion figure is for a scenario where the disease is contained in current markets with over 100 cases as of March 2, following a v-shaped recovery, IATA said.
The $113 billion estimate is for a scenario with a broader spreading of the disease.
This fall would translate to 11%-19% of worldwide passenger revenue loss.
IATA on Feb. 20 estimated the outbreak would cost carriers $29.3 billion in revenue, if the outbreak was largely confined to markets associated with China."
https://www.cnbc.com/2020/03/05/coronavirus-iata-warns-passenger-revenue-could-fall.html
Many airlines / travel companies have already withdrawn 2020 guidance - that is the level of uncertainty.
Coronavirus - of course business recovers eventually.
It seems the question being asked by the market about Travelex / Finablr is whether they have the capital structure to withstand a period of uncertainty. How long a timeframe that is, is anyone's guess.
If a travel related company is sitting on a nice cash pile, or appropriate levels of debt and high liquidity, or supportive banks then they will be fine.
Investors are now selling Travelex bonds at 50% of par.
Gross debt at 1H 2019 was $925.1m (incl India debts of $104.8m).
When liquidity is key how quick can they monetise their India loan book? Don’t know so added it back as it is debt (although the India book is not part of formal covenant tests).
Q1 EBITDA losses of $25m so what is gross debt now, estimated c.$950m.
They state cyber insurance will recover a lot of the $25m in terms of current liquidity but it doesn’t yet help.
Usable cash at 1H2019 was $486.2m.
Assume they settled all debts with the usable cash it would leave net debt of c.$464m. Business needs liquidity to operate so not sure that would be feasible but just to show the figures.
LTM adjusted EBITDA was $231.8m
Question is what might that be going forward this year – clearly there is going to be a material hit does it go to $150m? $125m? Put in your own assumptions – coronavirus adding significant uncertainty, figures could ultimately be lower.
At $150m net debt / EBITDA is over 3x, $125m its 3.7x.
The above $925.1m excludes lease liabilities of $509.9m – of which $136.1m are current/short term.
Latest Travelex bond prices can be tracked here
https://www.ariva.de/XS1577963306/chart?t=quarter&boerse_id=1
https://www.yahoo.com/news/airline-hub-uae-tells-citizens-063342116.html
The United Arab Emirates on Thursday warned its citizens and its foreign residents not to travel anywhere abroad amid the ongoing worldwide coronavirus outbreak, a stark warning for a country home to two major long-haul airlines.
The country's Health and Community Protection Ministry warning comes as its capital, Abu Dhabi, sent 215 foreigners it evacuated from hard-hit Hubei in China to a quarantine set up in its Emirates Humanitarian City. They include citizens of Egypt, Sudan and Yemen.
Health officials warned that those traveling abroad could face quarantine themselves at the discretion of authorities. The UAE is home to some 9 million people, with only about 1 million estimated to be Emirati citizens.
The UAE is home to Emirates, the government-owned airline based at Dubai International Airport, the world's busiest for international travel. Abu Dhabi also is home to Etihad, the country's national carrier. Both airlines have encouraged staff to take time off as international travel has dropped due to the virus.
https://www.cityam.com/corporate-governance-at-travelex-owner-questioned-over-links-to-nmc-health-founder/
Corporate governance at Travelex owner questioned over links to NMC Health founder
Ongoing financial turmoil and questions over its corporate governance structures have caused analysts to downgrade the credit rating of money transfer giant Travelex, amid ties to troubled firm NMC Health through its founder.
NMC founder and former chief executive BR Shetty and his son own 66 per cent of shares in Finablr — the sole owner of Travelex — while the former sits on the company’s board. In January this year, Shetty placed around 56 per cent of Finablr’s share capital as security for borrowing at his own financial vehicle BRSV.
Analysts at S&P Global have voiced concerns that the current debt situation at Travelex is “unsustainable”, and that loans made by Shetty using capital at its owner Finablr could, if breached, trigger a mandatory repayment of more than €360m in outstanding notes at Travelex.
Moreover the independence of Finablr’s board has been brought into question as a result of Shetty’s position at the company and his role in ongoing investigations at NMC.
Regulators last week opened a formal investigation into NMC, after the company revealed unauthorised financing which was not disclosed on its balance sheet. Shetty, an Indian billionaire who quit the board of NMC last week, is at the centre of its investigation alongside all other former members of NMC’s board, its former chief executive and some members of its treasury team.
“Dr. Shetty continues to remain on Finablr’s board, bringing to question its independence and we cannot rule out the possibility that market participants may view corporate governance controls at Finablr as weak,” analysts wrote in a note.
The agency downgraded Travelex’s credit rating from B- to CCC. It also placed Travelex on notice for a further downgrade, if corporate governance issues are formally raised by shareholders, or it has reason to suspect a potential breach of the company’s revolving credit facility or of BRSV’s loan.
The trouble at NMC Health has affected both Finablr and Travelex directly, causing major falls in both share price and bond price. As a result of the fall in value, Finablr was today demoted from London’s FTSE 250 index.
S&P Global also linked the downgrade to an update from Travelex on the knock-on effects of a New Year’s Eve ransomware attack, combined with lower transaction volumes from the spread of coronavirus. Travelex said the problems will reduce its underlying earnings for the first quarter of 2020 by £25m, while disruption from the virus could also weigh on full-year earnings.
“In our view, the effect would be to make the capital structure deeply unsustainable,” analysts wrote.
Spokespeople for Travelex and Finablr did not respond to requests for comment.
"UAE Exchange Centre LLC 29 February 2020
Dear Customer, appreciate your feedback and deeply regret for the inconvenience caused. Our Technical teams are currently working on a website and app normalcy. We assure our sites will be fully operational soon.We hope your continuous association post site normalcy."
https://play.google.com/store/apps/details?id=com.uaeex.gcc&hl=en_GB&showAllReviews=true
Not sure what is going on with the app (sort by Newest review)
https://www.arabtimesonline.com/news/travel-tourism-to-and-from-kuwait-drops-by-80/
Kuwait travel down 80%.
Airline travel has always bounced back eventually - key uncertainty is when and what a business can do to to mitigate the impact in the meantime (airlines ground planes, reduce capacity, some asking staff to take unpaid leave).
What can Finablr do ? Reduce opening hours for Travelex and other FX outlets?
Industry sources are worried that delays on clearing up these issues will impact on the performance of Finablr... and by extension that of UAE Exchange Centre.
Remittance powerhouse
The UAE Exchange Centre has been a clear leader in the currency exchange space, with a significant hold of the low- to mid-income expats’ remittances. “But that is not where it’s main strengths are - UAE Exchange is a clear leader in the corporate transaction space,” said a top official at a competitor. “I would assume corporate transactions would make up 50 per cent of their total volumes - and that’s huge. In comparison, other exchange houses would be in the 10-20 per cent range.
“Both NMC and UAE Exchange Centre are respective leaders in their spaces - they share so much history. And when one starts hurting, the other could feel the pain as well.”
Watch out for the credit ratings
NMC Health’s rating has been downgraded by Moody’s, which instantly impacts its ability to secure loans at favourable rates. This is what Moody’s had to say: “It no longer considers the company’s audited financial statements to be reliable.”
And that the NMC debt rating was downgraded because the “company no longer has reliable access to funding.”
Going forward, will Finablr be able to insulate itself from NMC? If yes, how quickly can it do so?
On the financials, Finbalr has not been doing too well. It has the coronavirus to blame as well.
“While the impact of the coronavirus is at present observable mainly in the consumer foreign exchange segment, the situation is developing rapidly around the world and could have knock-on effects on processed volumes in other segments,” Finablr said in a filing with London Stock Exchange. “The company’s cross-border payments segment could be impacted, for example, as a material portion of the business happens at physical locations.” (At the end of the first-half of 2019, Finablr had debts of $334 million. NMC, for comparison, had $2 billion.)
What next?
Banking industry sources say clarity on who holds what shares is the need of the hour for Finablr. More delays pinning this down will only add to the swirl of doubts.
“However difficult it may prove to be, Finablr and UAE Exchange Centre needs to distance itself from the problems at NMC,” said a senior marketing source. “Brand associations carry both benefits and risks. Clearly, now is not the time for any association in the minds of consumers.”
How well and quickly can Finablr - and UAE Exchange Centre - bring out that degree of separation?
https://gulfnews.com/business/banking/will-nmcs-health-hit-uae-exchange-centre-1.70135288
Will NMC’s health hit UAE Exchange Centre?
Common shareholding might mean problems for B.R. Shetty’s financial services company
Dubai: The problems at NMC Health could well spill over into Finablr, the financial services holding company that was launched by Dr. B.R. Shetty and which listed on London Stock Exchange in May 2019.
Finablr’s stock price is going through some turmoil - down 27 per cent just in the last five days - as more revelations pile up about NMC’s financial health. But that’s not all.
Highly placed sources say that UAE Exchange Centre, the cashcow at the centre of Finablr’s holdings, has been conducting an internal review at its local operations in recent days. There has been no official word from UAE Exchange Centre about whether such a review is going on.
“Both NMC and UAE Exchange Centre/Finablr have a shared lineage and heritage in the form of Dr. Shetty - problems at one cannot be insulated from the other,” said a banking industry source with close association with both entities.
That’s not all - Finablr’s CEO is Promoth Manghat, whose brother, Prasanth Manghat, was unceremoniously dismissed as CEO of NMC on February 26. Since then, questions have been raised about whether Finablr too will see a change in management. (Promoth, incidentally, was CEO of UAE Exchange Centre until 2015 before taking on the same position at the then newly created holding company Finablr.)
Who owns how much?
What’s known is that Finablr has been trying to track down the exact shareholding held by its principals, including Dr. Shetty. That’s because Dr. Shetty had pledged 56 per cent in his 63 per cent stake to take loans five years ago. Now, this is where the problem lies - the Finablr share is now in a freefall, capped by the 27 per cent decline in the last five days. And it was as recently as December 19 that the share was at a one-year high of 228.4 pence. It closed March 3 at 50.9.)
“If Dr. Shetty’s shares are pledged with banks, it’s unlikely they will be retaining the whole of 56 per cent if prices keep dropping,” said an industry source. “It will be interesting to know whether - or how much - of these shares have since been sold.”
Missed deadline
Finablr was to submit the current status of its shareholding structure to London Stock Exchange by end of last month, according to a filing issued by it.
On February 19, it issued a statement: “The independent directors have been informed that the Shetty family and their advisers are not yet in a position fully to respond to them but have undertaken to do so as soon as possible. The independent directors are seeking to resolve the position by the end of February 2020 at the latest.”
The statement added that the directors “continued urgently to seek further information from the Shetty family to clarify the position as to the respective interests in the Company’s shares, inclu
I fully agree; trying to make Q4 numbers by switching off the Marketing Machine will mean fewer new clients recruited and this adversely impacts the business going forward. Seems more likely that Plus500 will miss market expectations for current year; absent a record Q4 which needs to be miles ahead of anything they have ever achieved
From Stockopedia http://j.mp/1i072fd
In terms of the recent post which states EPS is 11 US cents and PE is hence 18x it should be clearly noted that the EPS of 11 US cents quoted is for the 6 month period to 31/12/13 so it is incorrect to use this as the basis for a PE ratio (either annualise the 6 month figure, calculate the LTM figure or look at the prospective earnings for 12 months). The multiple is then of course quite different. Also note that the US leasing companies trade on higher multiples: Aercap 13.8x forward PE, Aircastle 14.1x forward PE, Fly Leasing 11.3x forward PE, according to Nasdaq. Whether to include a contribution from asset sales in ongoing profitability is a matter of opinion - as the fleet grows the trading of assets becomes a typical part of the business in my view