Member Info for wealthtrasfer

I see it was debt included. Low margin train and bus sale, probably what Mobico would get for the WM Bus and German rail business. I factored that value at £0 in my sum of parts sale. Not the multiple you would use for Alsa and US businesses or UK Coach.

Was the Arriva sale Net of Debt?

Horis - not a mile off my low estimate and dont disagree that a bid could be around that number. However I think that the proposed US School Bus sale may be the poison pill needed to prevent or at least delay the chance of an outright bid succeeding at least in the short term until the 'value' of US Bus is understood.

My rationale for holding is based on if this company was asset stripped and sold off in its geographical and market segment chunks, net of all debt. I see it at around £1.60 low and £3.40 high. Based on recent current multiples for the high number and discounted for market conditions for low.

Someone is going to be also looking at those numbers as a 'back stop' for making an offer if the proposed US Bus sale doesn't spoil the party.

I’ve had the same opinion on not selling and debuting but that’s because I saw the longer term value. Which is why I am where I am in this share - well under water. However what keeps me sane is when I value the sum of the parts and deduct all the debt (including hybrid) I come up with a multiple of current market cap even on the most conservative valuations. Which is why I’ve sat on my hands and continue to do so.

No one knows where this is heading. All I know is that the risk is to the upside for me. I wouldn’t want to be out at 60p hoping to get back in at 30p but not saying it won’t but I wouldn’t take the risk.

Ive said this before but worth reiterating:

Take a look at SAGA. Very similar situation to MCG. Similar management confidence, debt, market and assets. Lost all market confidence and tanked from £5 to lows of around 60p, look at the SP chart. Announced a sale offer of a key asset (insurance) and price tripled (even though the debt wouldnt have reduced as much as MCG). The sale didn't close and may not but price stayed at around double off lows. Still has asset to sell.

I believe MCG to be in much better shape, better market and risks and has better opportunities than SAGA. 'When' a sale of US bus is announced I expect a similar reaction. Now we ('the board') has a plan, I am much more hopeful of a quicker return to normality.

I fully appreciate JG's position and some and so when I say this its not from a position of relative comfort.

I feel better about this share now than for some considerable time. This is because we now have something definitive to hold out for. The announcement of selling US School bus now puts a stake in the ground and we have 6-9 months to get to a position where the share price should recover strongly and not wait for 3 years plus.

Its not that long to wait. I may hibernate again and see you in the spring.

I would think that Directors cant buy during proposal for sale of material assets. They must be in a closed period until sale. Also year end close so no director buys for at least 6 months.

I thought this was a very positive para: ..."We expect the measures taken by Mobico, namely increasing its UK bus pricing and reducing costs (target of GBP15 million in 2H23), along with the ongoing recovery post-pandemic, to support deleveraging. This is despite the fact that the company’s results were lower than expected in 1H23"

ie they expect it to be profitable despite the lower H1 and down graded H2

..... that will mature in November 2023. However, Mobico will lose the 50% equity credit on its GBP500 million hybrids from 2026 onwards, because Fitch deems the first coupon step-up date in February 2031 as the effective maturity date. If not refinanced with another hybrid bond ahead of that, then the equity credit of 50% would change to 0% five years before the effective maturity date, leading to higher leverage, as per Fitch's criteria.

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

Fitch Ratings-London-16 October 2023: Mobico Group Plc’s (Mobico; BBB/Stable) plan to dispose of its North American school bus business would likely help in mitigating the impact from weaker trading in UK businesses, assuming a timely disposal with the majority of sale proceeds used to repay debt, Fitch Ratings says.

The announced sale of the North American school bus business is part of the company’s strategic review focused on de-leveraging and accelerating capacity for growth investments. We expect Mobico to use the majority of the proceeds to repay its debt and to move leverage towards a net debt/EBITDA ratio of 1.5x-2.0x (from 2.8x at end-June 2023), in accordance with the company’s financial policy. We expect EBITDAR net leverage to decline (pro forma for the disposal) to less than the existing negative rating sensitivity of 3.5x, even though the timing, asset valuation and use of proceeds are not yet certain. However, the sensitivities for the current rating might be revised due to changes in the business profile as explained below.

In our view, the potential disposal of the North American school bus business would result in a significant reduction in Mobico’s exposure to the US, in addition to the loss of contracted revenue. This will result in ALSA (mostly in Spain) becoming its largest business, contributing almost 50% of group EBIT. However, Mobico will still be a more well-diversified business than other Fitch-rated passenger land transport peers with operations in several countries, including the UK, the US, Spain, Germany, Morocco, Portugal and Switzerland. The company is also well-diversified by sector with operations in local buses, regional and inter-city coach in the UK, Spain and Morocco; transit and shuttle services in the US and rail in Germany.

Operating performance in 2023 YTD, particularly in North American school bus and UK bus businesses, has been weaker than previous expectations, due to price increases lagging cost inflation and slower recovery in volumes. The elimination of pandemic-related government aid this year is also adversely affecting North American school bus profits compared with 2022.

We expect the measures taken by Mobico, namely increasing its UK bus pricing and reducing costs (target of GBP15 million in 2H23), along with the ongoing recovery post-pandemic, to support deleveraging. This is despite the fact that the company’s results were lower than expected in 1H23 (EBIT of GBP57.5 million), and that the management further reduced their EBIT guidance by GBP25 million-30 million in 3Q23 trading update (EBIT of GBP175 million-185 million in 2023 vs GBP197 million in 2022).

Near-term refinancing requirements are limited as Mobico has recently issued EUR500 million senior unsecured notes to repay the GBP400 million

I cant see how UK Bus or German Rail fits in with the stated objectives on ROCE. The board are touting 25% + ROCE on new contract wins and targeting growing returns over the next 4 years. High volume, low margin and political contracts don't fit with this at all. They need to sell them off or restate their objectives.

Ditto - I’ll be lucky to get out unscathed even with a £1.5b asset sale

Prime - if the company has an option to sell part of the business for £1.5b (assuming h it’s real and achievable) why would the BoD (or more importantly the ii’s) entertain a low ball offer for the whole. Now that the BoD have finally capitulated into raising cash from an asset sale the ii’s will surely give them the time to see what they can get before agreeing to a sale of the whole, unless there’s a more attractive offer.

Mobico, a British transport group that owns Alsa and has the Cosmen family as its main shareholder, wants to take advantage of the strong interest of infrastructure funds in its sector to launch the sale of the school bus division in the United States, in a transaction aimed at raising some 1,700 million euros that will serve to clean up the balance sheet.

Ignacio Garat, CEO of Mobico, announced last Thursday the decision to begin the process of divestment of that business, which operates a fleet of the famous yellow vehicles, which serve schools located in about 30 states.

Market sources indicate that Mobico has hired the investment bank Goldman Sachs as advisor and coordinator of the process. It will have the support of Bank of America, the group's regular strategic advisor. The operation could last half a year: after preparing the sales notebook and formulating the first round of offers, the candidates must carry out an extensive operational, accounting and legal review of the subsidiary (due diligence) before formulating binding proposals.

Analysts consider that, taking into account previous transactions in the sector, the operation could be between 1,500 and 2,000 million dollars (1,400 to 1,900 million euros). Matthew Copeland, an analyst at Jefferies, points out that the sale could reduce the group's net debt from 4.1 to 2.5 times annual EBITDA.

The interest of the funds

In principle, the great candidates to carry out the acquisition are infrastructure investment funds. In recent years, these entities have begun to buy various bus operators in Europe and North America, understanding that their concessions and contracts allow them to ensure relatively stable income in the medium term. For example, EQT acquired First Group's subsidiaries in the United States in 2021 (including school buses for $4.6 billion).

Goldman Sachs was one of First Group's advisors in this process, along with Rothschild and JPMorgan.

In Europe, a consortium of Globalvía and Kinetic has taken over Go Ahead; DWS (Deutsche Bank's investment manager) bought Stagecoach, and I Squared is negotiating the purchase of Arriva, Deutsche Bahn's international subsidiary.

The decision to sell Mobico plan to reduce costs (the target of between 15 and 30 million annualized is increased by 20 million pounds) and to cut leverage. Alsa's business in Spain soared 16% in the third quarter.

LWHL - stated purpose is debt reduction. However if they do achieve the kind of numbers they’re touting then there will be funds available for both.

Spanish version of Financial Times

HV - nice find! Massive game changer if successful. Quotes Garat and Cosmen family. https://amp.expansion.com/empresas/transporte/2023/10/16/652c0d85e5fdeacf718b45de.html

Paddy - that was the risk they took when not selling assets a year or more ago. They gambled and lost and put the whole company at risk of takeover on the cheap.