|Bid||0.00 x 0|
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|Day's range||134.00 - 139.50|
|52-week range||99.28 - 184.40|
|Beta (5Y monthly)||N/A|
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(Bloomberg Opinion) -- You might think that 2020 was the year everyone gave up on petroleum-powered transport. Royal Dutch Shell Plc Chief Executive Officer Ben van Beurden has expressed doubts about whether oil demand will ever return to pre-Covid levels. The world’s largest carmaker Volkswagen AG pledged that more than a fifth of its vehicles will be battery-driven by 2025.The International Energy Agency is pushing for 30% of vehicle sales to be electric by 2030 and expects gasoline demand to peak late this decade even under current policies. Major oil refineries are switching to manufacture raw materials for plastics and jet fuel on the expectation that consumption in their core market of powering road transportation is in decline.Seven & i Holdings Co. has a different view. It’s impossible to see the 7-Eleven owner’s $21 billion offer to buy Marathon Petroleum Corp.’s Speedway convenience stores as anything but a wager on the future of their main sales item: gasoline. Seven & i’s motivation is straightforward. Speedway has 3,900 sites concentrated in the Midwest and South of the U.S. That’s equivalent to about 40% of 7-Eleven’s existing North American network, and turns over about $1.5 billion of annual earnings before interest, taxes, depreciation and amortization. By using its convenience-store expertise, Seven & i(1) can upgrade Speedway’s shelves to a more attractive and profitable mix of own-brand products. Fuel, which accounts for about three-quarters of revenue and half of gross profit, will largely look after itself.As we've written, that prediction looks like a mistake. Even under a Trump administration that’s worked hard to tear up fuel-economy rules, gas demand has stood still for four years. Despite evidence that urban traffic has rebounded close to pre-pandemic densities and long holiday road trips are exceeding former levels, on a trailing 12-month basis, gasoline consumption is currently at its slowest since the early 2000s.The increasing efficiency of conventional vehicles is already enough to reduce the amount that car owners spend filling the tank and the number of trips they make to gas stations, a dynamic that will hurt both the fuel and non-fuel sides of the business.Add in the impact of electric vehicles and the effect will be compounded. At present, there are just 1.5 million on U.S. roads; by the end of the decade, General Motors Co. expects to see at least twice that number sold there every year, equivalent to nearly 20% of annual sales. While gas stations can install chargers to accommodate this market, battery vehicles charged at home or in workplaces won’t have to make the regular visits to the pump and convenience store that even hybrid cars require.The risk for Seven & i is that it’s willfully blind to these looming changes. Battery cars as a share of U.S. vehicle sales will rise to just 5% in 2030 and 11% in 2050, according to its presentation. That’s drastically lower than most carmakers and oil companies are predicting (BloombergNEF pegs the share at around 25% in 2030 and above 60% by 2040). Remarkably, Seven & i posits as one of the “reasons for the acquisition” the way that taking control of Marathon’s store network will help it achieve environmental, social and governance goals such as installing energy-efficient lighting, switching stores to renewable power, and reducing use of plastic packaging. This misses the forest for the trees. The overwhelming majority of emissions from a gas station aren’t the Scope 1 and Scope 2 type generated on-site and from buying electricity, but the Scope 3 carbon generated when the fuel it sells is burned in car engines.Unlike the ESG initiatives that Seven & i boasts about, this isn’t just a nice-to-have factor to stick in the corporate responsibility report. The shift that the automotive and petroleum industries expect to see in the power-trains of road vehicles over the coming decade is a challenge to the core of the fuel retail model. With this deal, 7-Eleven will go from depending on gas for 20% of its gross profit to 30%. It’s heading the wrong direction down a one-way street.(1) Although the 7-Eleven brand is used around the world, we're using "7-Eleven" in this article to refer to the North American unit owned by the Japanese parent company, Seven & i.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Record declines in GDP across Europe hit stocks.
(Bloomberg Opinion) -- Consumers fearful of catching the coronavirus are adapting their transport habits: Crowded airplanes are now unappealing, while being cocooned in a car feels safe.Car rental firms have had a close-up view of this rapid shift in consumer behavior because most generate more than half of their revenue at airports.This dependence looked like it would be disastrous for the entire car rental sector, but on Tuesday evening two of the world’s largest car rental groups — Paris-based Europcar Mobility Group and U.S. operator Avis Budget Group Inc. — gave quite different assessments of their prospects. That has a lot to do with how they’ve managed their large debts and costs.Absent a takeover offer, Europcar which is partly owned by private equity group Eurazeo SE, looks to be heading for a financial restructuring, whereas Avis’s fortunes are rapidly improving. The latter’s shares have more than trebled since their March low. The stock surged another 14% in after-hours trading on Tuesday, after the group said it expects to start generating positive cash flow again.This transatlantic divide is surprising for a couple of reasons. First, unlike in Europe, where the virus has been under fragile control, the coronavirus is still ripping through the southern United States. Second, U.S. car rental firms were denied a bailout from Washington, and Hertz Global Holdings Inc. and Advantage Rent A Car both filed for bankruptcy in May. In contrast, Europcar was able to tap state-backed loans.Europcar has also enjoyed one other big advantage: It can often return unwanted vehicles to their manufacturers. U.S. rental firms have to sell these themselves, since they typically purchase most of their vehicles outright. When used car auctions shut down during the height of the pandemic, the American companies found it difficult to downsize their fleets. Used car prices plunged and became a factor in forcing Hertz to seek bankruptcy protection.Now with showrooms reopening, second-hand car sales have rebounded. Even formerly car-shy New Yorkers have discovered it’s useful to have a vehicle.Hence, Avis has been able to reduce its fleet by around one quarter, and coupled with cost savings and job cuts, it burned through far less cash than expected during the second quarter. Importantly, Avis has also retained access to capital markets: It raised $500 million from debt investors in May, albeit by offering an eye-watering 10.5% coupon. Thanks to the Federal Reserve’s aggressive market interventions and Avis’s own resilient performance, those junk bonds now trade well above par. If only Europcar could say the same. The depressed price of the French group’s 600 million euros of 4.125% coupon bonds due in 2024 reflect worries that holders won’t get all their money back.Maybe they won’t. On Tuesday Europcar reported a first-half loss of 286 million euros and warned its existing capital structure “weighs on its ability to ensure a proper path to recovery.” It is therefore evaluating “short and long-term alternatives” to address its capital structure and “liquidity constraints.”Europcar has 1.7 billion euros of debt, including 320 million euros of state-guaranteed loans and excluding vehicle-related borrowings, but only 400 million euros of unrestricted cash. Following several acquisitions, there’s also 1.2 billion euros of goodwill on the balance sheet, which far exceeds the group’s 235 million-euro market capitalization. The best hope for Europcar shareholders, who’ve lost 90% since the stock’s peak in 2017, is that someone makes a bid for the company. Eurazeo was looking at exiting its remaining 30% stake even before the novel coronavirus emerged. Now Volkswagen AG, which sold Europcar to Eurazeo for 1.3 billion euros in 2006, is exploring an offer for its former subsidiary, Bloomberg reported last month.Acquiring Europcar might help VW expand its range of mobility services, including for renting and leasing electric vehicles. Europcar’s airport outlets are likely to remain depressed for several years, but its commercial vehicle and urban car-sharing businesses are performing better. There are also opportunities in the long-term rental market: Europcar’s “drive safely back to work” marketing effort hopes to persuade commuters nervous of public transport to borrow a car for a few weeks. Still, taking on Europcar’s problems would be a big distraction for VW, which has plenty of its own issues right now. The U.K.’s decision this week to impose a quarantine on holidaymakers returning from Spain doesn’t bode well for overseas tourism bookings.Unless more government help is forthcoming, Europcar’s debt holders may have to cut the rental firm some slack. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.