StockBeat: Europcar Runs out of Road, but not Everybody’s Hertz

The rotation to cyclicals – if indeed it’s coming at all – has come too late for Europcar (PA:EUCAR).

The French-based car rental firm said on Tuesday it’s seeking talks with creditors on restructuring its debts, in an effort to stop following its larger and more famous peer Hertz into bankruptcy.

Europcar stock fell as much as 30% on the news, while its bonds due in 2024 and 2026 fell as much as 13 points, to trade around 37% of face value. If that’s all the bondholders think their investment is worth, then current shareholders, first and foremost French investment firm Eurazeo (PA:EURA) – are looking at a very negative outcome.

Eurazeo’s stock fell 2.6% by 5:15 AM ET (0915 GMT), although that wasn’t much more severe than the broader market decline on a morning when Europe braced for more selling of U.S. tech stocks after the long Labor Day weekend. The French CAC 40 fell 1.0% and the STOXX 600 fell 0.9%, undoing most of Monday’s gains.

The confirmation by Eurostat that Eurozone gross domestic product shrunk by an eye-watering 11.8% in the second quarter of the year – markedly worse than the performance of the U.S. economy – hardly helped sentiment.

Aside from the usual expressions of confidence in emerging from the current crisis stronger than ever before, the standout sentence in Europcar’s press release was the following, which underlined the difficulty of the road back to health for the travel sector in the wake of the pandemic.

“What has been seen across the board in the travel and leisure sectors this summer demonstrates that the recovery of these industries to pre-Covid levels will be very slow. Furthermore, as Covid-19 continues to be present throughout the world, the timing of the recovery remains highly uncertain.”

Trying to rebrand themselves as mobility service providers hasn’t changed the reality that firms like Europcar still depend overwhelmingly on plain vanilla car rentals, and that the majority of that business is based at airports. Such business fell by as much as 90% during the second quarter.

Hopes for a quick rebound have been dashed by the clear evidence that increased tourist travel has gone hand in hand with the resurgence in Coronavirus cases during the summer. Easyjet stock fell 6.3% after it was forced to trim its flight schedule for the quarter after the U.K. government put a handful of popular Greek islands back on its list of high-risk destinations.

And yet it would be wrong to tar all car hire firms with the same brush. As has been so often the case, the pandemic has merely hastened the demise of a company that had already started 2020 in trouble. German rival Sixt (DE:SIXG), by contrast, is down only 12% year-to-date thanks to its stronger balance sheet. With cash of over 814 million euros and short-term debt maturities of only 380 million, it looks much better placed to ride out the current storm and survive until cyclicals return to fashion.