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Getlink (Eurotunnel) thread
1) Getlink manages and operates the Channel Tunnel between England and France. Its regulatory framework is defined by the Concession Agreement of 1986, which gives GET the right to operate the Channel Tunnel all the way until 2086
1) Getlink manages and operates the Channel Tunnel between England and France. Its regulatory framework is defined by the Concession Agreement of 1986, which gives GET the right to operate the Channel Tunnel all the way until 2086
2) Core business is the providing shuttle services (for cars/trucks) and providing access, on a toll basis, for passenger/freight trains to its railway network
3) Group was crated by signing of Concession Agreement (Aug 1986), with the aim of financing, building & operating what would become the Channel Tunnel between France & the UK
4) Estimated build costs of £4.7bn proved optimistic with a total build cost of ~£9.5bn. From the onset the group was saddled with £8bn of debt but the tunnel successfully opened in May 1994
5) Highly indebted, the business limped on through annual losses, board room power struggles and a failed debt-for-equity swap before being placed in bankruptcy in Aug 2006
6) Eventually Eurotunnel completed a restructuring in May 2007 with Deutsche, GS & Citi providing £2.8bn of funding & the remaining debt being exchanged for equity before returning to public markets in July 2007
7) Since the group (re) IPO’ed in July 2007, returns have been lacklustre although they have picked up after a dismal first 2 years. Since end of July 2009, TSR has run at ~10% CAGR. Shares were understandably impacted by Covid-19 & are trading 25% below their high in Feb 2020
8) Since its restructuring the group has mostly been profitable and has gradually improved its financial health although ND/EBITDA is optically high at >7.5x based on 2019 figures
9) Group changed its name to Getlink in 2017, heralding “a true commitment to the future with the development & mgmt. of safe, modern & environmentally friendly mobility infrastructures” https://press.getlinkgroup.com/news/a-new-name-for-a-new-challenge-groupe-eurotunnel-becomes-getlink-6fb7-0791e.html
10) Group is organised into three business segments: 1) Eurotunnel (including: Shuttle services, Railway network & other revenues), 2) Europorte and 3) ElecLink
11) Shuttle Services transports cars & trucks in an unregulated business & the group has full control over pricing. Volumes are mature (0-1% CAGR) but Getlink has managed to increase “yield” on shuttle services at ~3% CAGR since 2015. This is due to its competitive position…
12) …with the group providing the most frequent (>200 crossings/day vs ferry ~12/day) & fastest transit service (~35 mins vs ferry ~90 mins) on the “Short Straits” route (85-90% of Continental Europe-UK traffic)
13) Getlink holds a ~40 / 55% market share of trucks/cars & is the defacto choice for price insensitive passengers
14) Railway Network provides access to the Eurotunnel for 1) HS passenger rail & 2) rail freight. It is a regulated business under Railways Usage Contract until 2052 which provides a framework (annual fixed fee + fee per passenger + opex)
15) For Getlink, volumes are the more important driver with pricing only taking into inflation “to a certain extent”. Passenger volumes have grown at a ~3% CAGR since 1997 (from ~6m to ~11m), as Eurostar has added more regular services and new routes (e.g. Amsterdam recently)
16) Whilst Eurostar is the only current operator of services other companies can apply to run services. Eurostar & Thalys’ plan to merger their HS rail operations under Project “Green Speed” could help volumes grow in the future
https://www.railwaygazette.com/high-speed/thalys-eurostar-merger-planned-under-green-speed-initiative/54709.article
https://www.railwaygazette.com/high-speed/thalys-eurostar-merger-planned-under-green-speed-initiative/54709.article
17) Europorte is the rail freight segment providing a range of integrated rail freight services (national & international). ElecLink is a project to install 1GW electricity interconnector between France & UK via the Tunnel. Mgmt are targeting EBITDA of EUR 80m once operational
18) Under Covid-19 the group’s shuttle service saw passengers vehicles down >90% y/y in April. Trucks have been more resilient, with the tunnel a key transit link in UK supply chains. Eurostar passengers were down 20% y/y in 1Q20
https://press.getlinkgroup.com/news/shuttle-traffic-for-april-2020-8d1a-0791e.html
https://press.getlinkgroup.com/news/shuttle-traffic-for-april-2020-8d1a-0791e.html
19) Restart of tourist travel in Europe/UK should see passenger shuttles return with customers able to cross the Channel without leaving their vehicle/coming into contact with anyone. Social distancing will be more difficult for Eurostar passengers who will have to wear masks
20) Main sources of debt in capital structure are 1) term loan (~EUR 4bn) and 2) secured bond at the parent (~EUR 550m). Covenants attached to both but secured bond ones only apply on new issuance. Term loan has DSCR ratio requirement of >1.1x
21) Current major shareholders include infrastructure groups: Atlantia (~15% / ~24% of voting rights) & Effiage (~5%) and hedge fund, TCI (~12% / ~18% of voting rights)
22) Everyone can do their own work on valuing this unique asset but a few of my thoughts are… picking a target multiple is difficult, cash flow to equity is important & there is a need to consider/recognise the full 66 years remaining on the concession life
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