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Reposted in a better format

Summary of Key Points (from BBVA)

1. Rating Deterioration

o Mobico’s credit profile has weakened significantly.

o Moody’s downgraded them by three notches; Fitch by one notch.

o The downgrade reflects weak debt metrics (high leverage, low interest coverage) and rising interest costs.

o Covenants are tight: they must maintain interest cover > 3.5× and leverage < 3.5×.

2. Sale of School Bus Business

o In April 2025, Mobico announced the sale of its U.S. school bus business.

o However, the proceeds from the sale were well below market (or their) expectations.

o Because proceeds are lower, their ability to reduce gross debt is limited.

3. Capital Strategy: Cash Preservation Over Debt Reduction

o Rather than aggressively reducing debt, Mobico is focused on preserving cash.

o BBVA argues this is risky: preserving cash may lead to continued credit rating pressure, more expensive refinancing, and step-ups in coupon (hybrid debt) costs.

4. Remedies Identified by BBVA

The BBVA piece outlines a number of potential paths for Mobico to stabilize or improve its credit profile:

o Proactive debt management (e.g., tender offers, restructuring)

o Rights issue (raising equity)

o Equity injection (from new investors)

o More asset disposals (selling other business units)

o Takeover by the founding Cosmen family

o Activist investor involvement

o Government bailout

o Private equity buyout

5. Recovery Prospects

o BBVA estimates the recovery value for senior bondholders (if things go badly) could be 76–100%, assuming some partial asset coverage.

o This suggests that even in downside or distress scenarios, there is some cushion for senior debt — not a complete wipeout.

o For the hybrid (perpetual) debt, BBVA is more cautious: in a restructuring, recovery could be very low (near zero) because those instruments are deeply subordinated + coupon may be deferred.

o They don’t expect Mobico to call (redeem) its hybrid in Nov-25 because covenant risk would be too high (gearing > 3.5× if they did).

6. Event of Default (EoD) Risk

o BBVA raises the possibility that some funds may try to trigger an Event of Default (EoD) via a “cessation of business” clause in the bonds.

o If triggered, this could give more negotiating leverage to creditors (or activists) and potentially reshape the capital structure.

7. Short-Term Barriers

o The two biggest near-term risks, per BBVA, are debt metrics and interest costs.

o Their current strategy (cash preservation) may actually worsen credit risk because it delays meaningful deleveraging.

Firepower continues to be right, again. This is starting to look really bad. Summary of the BBVA article from ChatGPT:

Summary of Key Points (from BBVA)

Rating Deterioration

Mobico’s credit profile has weakened significantly.

BBVA Market Strategy

Moody’s downgraded them by three notches; Fitch by one notch.

BBVA Market Strategy

The downgrade reflects weak debt metrics (high leverage, low interest coverage) and rising interest costs.

BBVA Market Strategy

Covenants are tight: they must maintain interest cover > 3.5× and leverage < 3.5×.

BBVA Market Strategy

Sale of School Bus Business

In April 2025, Mobico announced the sale of its U.S. school bus business.

BBVA Market Strategy

+2

Morningstar

+2

However, the proceeds from the sale were well below market (or their) expectations.

BBVA Market Strategy

Because proceeds are lower, their ability to reduce gross debt is limited.

BBVA Market Strategy

Capital Strategy: Cash Preservation Over Debt Reduction

Rather than aggressively reducing debt, Mobico is focused on preserving cash.

BBVA Market Strategy

BBVA argues this is risky: preserving cash may lead to continued credit rating pressure, more expensive refinancing, and step-ups in coupon (hybrid debt) costs.

BBVA Market Strategy

Remedies Identified by BBVA

The BBVA piece outlines a number of potential paths for Mobico to stabilize or improve its credit profile:

BBVA Market Strategy

Proactive debt management (e.g., tender offers, restructuring)

Rights issue (raising equity)

Equity injection (from new investors)

More asset disposals (selling other business units)

Takeover by the founding Cosmen family

Activist investor involvement

Government bailout

Private equity buyout

Recovery Prospects

BBVA estimates the recovery value for senior bondholders (if things go badly) could be 76–100%, assuming some partial asset coverage.

BBVA Market Strategy

This suggests that even in downside or distress scenarios, there is some cushion for senior debt — not a complete wipeout.

BBVA Market Strategy

For the hybrid (perpetual) debt, BBVA is more cautious: in a restructuring, recovery could be very low (near zero) because those instruments are deeply subordinated + coupon may be deferred.

BBVA Market Strategy

They don’t expect Mobico to call (redeem) its hybrid in Nov-25 because covenant risk would be too high (gearing > 3.5× if they did).

BBVA Market Strategy

Event of Default (EoD) Risk

BBVA raises the possibility that some funds may try to trigger an Event of Default (EoD) via a “cessation of business” clause in the bonds.

BBVA Market Strategy

If triggered, this could give more negotiating leverage to creditors (or activists) and potentially reshape the capital structure.

Short-Term Barriers

The two biggest near-term risks, per BBVA, are debt metrics and interest costs.

BBVA Market Strategy

Their current strategy (cash pres

Despite getting attacked almost every time he posts, Firepower is, and has been the whole time, correct. Absolutely shambolic management. The comments and hostile reactions on this board should be used by future investors as a cautionary tale of denial and cognitive dissonance

Currently, analysts expect GAAP EPS for 2025 of 4p. That gives this a rough forward P/E of 7x. This is in line with the last 3 year average forward P/E.

Let's hope they can achieve this otherwise it could go lower.

On the flipside, if they actually manage to make some GAAP earnings, this stock could go higher without multiple expansion. Their execution has been terrible so far, but hopefully doesn't get any worse

Mobico currently trades at roughly 11x trailing EV/EBIT.

If we take their EBIT guidance range and assume no change in net debt, this gives us a theoretical valuation with no multiple expansion of £1.23-£1.59.

This would change with the sale of NA bus, but we would also need to adjust for the EBIT loss.

Or restaurants for that matter

There are cafes near me which weren't making any money and these changes will almost certainly put them under

You are missing my point regarding the minimum wage. On their website there are many driver roles starting around £14 an hour. When they realise the gap between this and minimum wage has closed again, they could easily start asking for higher wages. This might not happen straight away, but is a risk over the next two years potentially. Plus, the NI impact will be felt from April, further squeezing an already very low margin business. Trainee driver roles on there start at £12 an hour in some places, and this will need to rise too. We aren't talking about a lucrative business here and every penny counts. A 30k employee will cost almost £900 more per year just from the NI adjustment and they have almost 50k employees. Not huge but certainly not helpful

The cost of a minimum wage full time employee on 37.5 hours per week, will rise from roughly 24k to 26.5k from April without any pension contributions from the employer. This will be an additional cost but I have excluded this because it differs across companies. This is a 10% rise which will obviously have knock on effects to all lower paid jobs, including bus drivers. This rise will be lower for small businesses, but I am concerned about further margin pressures on Mobico after this announcement, considering it is already struggling before this change

What PE ratio do we think Mobico should trade at? It is currently roughly 10x 'normalised EPS' i.e NON-GAAP

@the accountant How do you keep track/factor in the loss you've crystallised already? 61p is your average now, but doesn't include prior losses

The relevant metric is EV/EBITDA and therefore is not trading at 1x

Results are out on Monday April 22nd which is my birthday. I am not confident :)

@Hindy86 Don't worry, I don't work for HMRC :)

@Hindy86 I'm curious, do you keep track of your portfolio performance since inception? For example, could you tell me what % you are up since you began? (I don't actually want to know) I'm only asking because it became apparent to me recently that many people that I talk to cannot tell me, even though they spend countless hours researching positions. They have multiple accounts and have traded so often, they've 'lost' track of where they are. When I tell them to just take their current portfolio including cash and minus all of their deposits, I am met with a blank stare

Not sure how accurate the following information is, but this is what I have found on Tikr:

Mobico Group Plc expected to report Q1 2024 results on May 2, 2024. This event was calculated by S&P Global (Created on April 4, 2024).

The UK has a very uncertain outlook with more persistent inflation than Europe and the US. The UK markets have been shunned more since Brexit too

Https://www.fitchratings.com/research/corporate-finance/mobicos-disposal-of-north-american-school-bus-business-could-offset-slower-recovery-16-10-2023

If we use the assumptions from this article regarding the net debt/EBITDA ratio falling from 2.8x to 1.5x-2.0x, this implies a debt reduction of between £260m-£422m for the sale of the NA business. I've seen people mentioning a sale price of £1.5b, which seems extremely optimistic IMO and I'm not sure how this value was calculated?

Also, expecting this to hit £2 by Christmas, is absolutely delusional

"Moody's said it expects Mobico's total leverage "to remain material" at 4.4x at the end of 2023. This figure would correspond to a net leverage of 3.6x, slightly above the rating guidance of 3.5x."

Now this is concerning - after making progress on their Net Debt/EBITDA, they are now projected to swing back to higher levels. This is obviously why the dividend was pulled and the decision to sell NA bus.

I just cannot understand what has gone so terribly wrong in 12 weeks? I'm not concerned about bankruptcy risk, but this is one of the worst management calls I've come across in a while

What multiple and profit have you used for this?