07 september 2020
12:55
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Econocom is the biggest victim of the Brussels stock market with a loss of 11 percent. Investors react negatively to the acquisition of a French shipping company by the IT group. ‘It is necessary’, say analysts.
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Econocom
surprised the market on Friday evening with a very strange press release. The IT service provider conducts with the French group Bourbon exclusive negotiations on the acquisition of Les Abeilles, an offshore tow and rescue specialist. With six ships and 140 employees, Les Abeilles protects the French coast and comes to the rescue of ships in need.
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In the past, Econocom used to be a serial acquirer, but each time from companies with its own expertise: leasing IT equipment, digitization or offering other IT services. A shipping company raises eyebrows. In its press release, Econocom makes no reference to the reason for the takeover. CEO Jean-Louis Bouchard just reminds that as a civil engineer in hydraulic engineering he has an affinity with the sector. Econocom also emphasizes that it wants to act as a long-term shareholder and provide the fleet with sufficient resources, including financial ones.
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Lost credit
“What the hell is an IT company supposed to do with boats,” says a trader. “This takeover doesn’t make sense, and it suggests that Econocom has some sort of transaction stuck with the underlying assets of a loan that went missing.”
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ING thinks that too. “This is intriguing news,” said analyst David Vagman. ‘In itself, Les Abeilles is a financially healthy business. It operates through a concession for the French state and has stable revenues and profits. The acquisition does not increase Econocom’s operational or financial risk. ‘
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We suspect the deal is the result of a financial restructuring from a bad loan, leaving Econocom saddled with its client’s operations.
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“We suspect the deal is the result of a financial restructuring of a bad loan, leaving Econocom with the operational activities of its client. Econocom provided leasing services to Bourbon, the mother of Les Abeilles. Bourbon is active in the oil and gas industry, which is in dire straits. ‘
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Bourbon is a big player. The French group is active in 44 countries and has a turnover of 720 million euros with 8,200 employees and 458 ships.
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‘Very worrisome’
“The background to this deal is very worrying for investors,” explains Vagman. “The profitability of Econocom’s leasing business has been sub-par in recent years, presumably due to commissions on leasing contracts for non-traditional IT that Econocom recorded on its balance sheet, such as for Bourbon. Important questions remain unanswered: should Econocom make additional provisions for its contracts with Bourbon? What is the impact on the cash position? And are there other problem files in the leasing portfolio besides Bourbon? ‘
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Econocom has recently started trying to reduce the risks on its balance sheet. The IT group decided to focus only on its core business: leasing and services for everything related to IT. In the past, Econocom also financed other assets, ranging from the Bourbon fleet to hospital beds or the Roularta printing press.
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Even though Econocom has reduced the risks on its balance sheet, we still don’t know how many underperforming leases are on it.
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“Even though Econocom has reduced the risks on its balance sheet, we still don’t know how many underperforming leases are on it. And whether sufficient provisions have been set up for this, ‘Vagman concludes.
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Low visibility
On Thursday, Econocom will present its final half-year figures. At the presentation of the Preliminary results the company reported a 12.5 percent decline in sales, while operating profit was up 12.4 percent. The analysts have repeatedly complained about the limited visibility of the group.
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“Hopefully Econocom will provide more information about the takeover on Thursday,” says Vagman. He does not go further than a ‘keep’ advice for the stock, with a target price of 3.10 euros.
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