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Gatwick is struggling in £IG secondary (+4-6bps) on a 16y mandate

CONSUMER CYCLICALS
  • Gatwick (GATAIR/Opco Snr Secured; Baa2 Pos, BBB S, BBB+ S), a private co (Vinci Airports & GIP are the 2 equal shareholders) has rehashed FY23 results in its investor deck this morning, summarised below. We don't have a firm view on the name given uncertainty around distributions heading forward, don't see rating changes in near-term.
  • On earnings; it saw +31%yoy increase in Rev's to £1.0b, EBTIDA £618m (+38%yoy, FY19 £473m) & £286m of FCF. It says earnings recovery has been helped by 85% exposure (by passenger numbers) to short-haul and 89% to leisure - both recovering faster than long-hail and business travel. Revenue by business segment below - Its attributing +8% of the +34.5% increase in airport & traffic segment (~50% of rev's) to income per passenger growth/pricing with 25% traffic growth driving the rest.
  • On costs; Capex was up more than doubled to £155m, and operating costs jumped 20% to £397m - broad based across rents, general & staff & maintenance/IT costs. Despite capex bump its saying more cloud-based IT solutions is resulting in more OpEx vs. CapEx recognition.
  • On credit metrics; its reporting net debt reduction from to £2.7b to £2.5b. Its reporting plenty of headroom on senior ICR (3.5* vs. <1.5*) & RAR covenants. We'd note it has lock-up on distributions this year - Moody's was uncertain when it changed it to positive outlook in Jan on the rate it will upstream CF's post exit from lockup - nothing in guidance from co. on this. Also note some airline concentration risk with 46% of passenger numbers from EasyJet (2nd largest is to British airways at 13%).
  • On liquidity; it has £260m in cash & eqv's against >£2.5b in debt with another £550m in revolving credit & liquidity facilities. Front maturity is £300m 26's.
  • On guidance; its expects rapid increase in capex (2023/24 at ~£200m to £500m by 2027/28) - that is part of its £2b investment target up to 2029 - bulk of it in 2027-29 is expected to be on the Northern runway.
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