GEFCO’s IPO is just the beginning of change

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The news that GEFCO will float a proportion of its equity on the French stock market marks another stage in what is a quite unusual story.

Essentially a forced sale by PSA Peugeot-Citroen during its period of capital restructuring in 2012, the surprise majority shareholder that emerged was Russian State railways, RZD, earning PSA €800m in exchange for 75% of the equity.

It was unclear what RZD wanted in a company specialising in automotive logistics in Western Europe. There were considerable indications that Russian railways aspired to become some sort of logistics hub for Eurasia, transferring goods between China, Europe and Central Asia. GEFCO was to be a platform by which freight volumes were distributed in Europe, after being moved across China and Russia. This never quite worked-out. The underlying vision of Eurasian rail freight was prescient, but so far it has been the Chinese who have grabbed much of the market.

For the finances of RZD however, the consolation prize has been that GEFCO has prospered in its traditional markets. Whilst the objective has been to expand into sectors beyond automotive, GEFCO’s real success has been gaining both inbound and finished vehicle logistics of vehicle manufacturers other than that of its former parent, PSA Peugeot Citroen, as well the higher volumes of a PSA which is much healthier than in 2012.

The ‘initial public offering’ will probably release around 35% of the equity of the company. A statement from GEFCO said that RZD was “considering a reduction of its stake to below 50% of the Company’s share capital at IPO” and “PSA Group that still holds 24.96% of GEFCO is considering reducing its stake to below 10%…with the remaining holding subject to a 2-year lock-up period.”

GEFCO outlined its “consolidated revenue to be between €4.6bn and €4.7bn” and for “Recurring EBIT to reach c.€160m. For the full year 2019, GEFCO expects revenue to grow by c.4.0% and Recurring EBIT to reach c.€200m. For the full years 2020 and 2021 (medium term targets), GEFCO expects an organic revenue CAGR of c.4.0% with Recurring EBIT margin expected to further improve by 50bps to 80bps over the period.”

If accurate, this represents a good performance in the face of considerable volatility in the wider automotive sector. Assuming the IPO goes ahead smoothly, GEFCO may well raise several hundred billion Euros, however it can hardly be a bid target for the likes of DSV bearing in mind RZD still holds a controlling stake.

GEFCO does face real challenges in the immediate future. The automotive sector is undergoing a transformation and this may negatively affect GEFCO, notably in its aftermarket operations. The next phase of the company’s existence will be demanding strategically, probably requiring aggressive diversification. Its past performance is not really much of guide to its future.

Source: Transport Intelligence, January 1, 2019

Author: Thomas Cullen

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