After the Brexit vote, a widely-shared social media meme featured beloved children's book character Thomas the Tank Engine peering forlornly out from behind a brick wall obstructing the mouth of his tunnel.
Britons immediately got the joke: the country had turned its back on the European Union and the pound's slide slump would make European holidays prohibitively expensive.
For shareholders of Eurotunnel, the Channel Tunnel and rail shuttle operator, it's no joke -- and investors are right to challenge CEO Jacques Gounon's assertion before the vote that Brexit's impact on the company would be neutral.
Eurotunnel has slumped more than 25 percent since the referendum, mimicking the hefty falls of airlines like Easyjet and IAG (owner of British Airways). Among those feeling the pain is Goldman Sachs, which has a 15.5 percent stake in the tunnel.
But it would be imprudent to assume that this concrete symbol of Anglo-French co-operation will be gravely impaired simply because Britain will no longer be part of the EU.
The company was already under pressure. The Paris and Belgium terror attacks hurt travel demand and it was forced to boost security last year when migrants tried to access the 50 kilometer tunnel. Meanwhile, rival cross-Channel ferry operators have benefited from falling fuel costs.
Eurotunnel reports its results in euros, so revenue and profits will take a hit from the pound's 12 percent slide against the euro post-Brexit. About half of sales are in sterling, but most costs are in euros. A 10 percent drop in sterling against the euro reduces Ebitda by 6.4 percent, according to the company.
The key issue will be what happens to traffic if there's a recession in Britain: about 85 percent of passenger car shuttle journeys commence on the U.K. side of the Channel. Unlike a manufacturer, say, an infrastructure operator can't slash costs when demand slows because most of its expenses are fixed.
But, if the last recession is anything to go by, Eurotunnel's passenger business should cope: In 2009, car shuttle traffic was broadly flat while Eurostar express train passenger numbers increased slightly.
The impact of a recession on cargo volumes is likely to be more serious, however. Eurotunnel's Europorte rail freight services business accounts for more than a fifth of revenue -- but the group's overall exposure to cargo flows is higher because other rail freight companies pay to use the tunnel. Eurotunnel's own shuttle service also carries about 1.5 million trucks a year.
In the near term, the weaker pound might be supportive of U.K. exports and therefore freight traffic. But in the medium term any new tariffs on Anglo-French trade would surely be negative for commercial traffic.
Overall, analysts at Barclays estimate Eurotunnel's revenue could fall five percent next year and earnings per share by 16 percent.
Fortunately, the tunnel operator's balance sheet is in much better shape these days. Having sought bankruptcy protection in 2006 to help reduce a garguantuan debt burden, net debt was a more manageable 3.6 billion euros at year-end, or 6.6 times Ebitda. Helpfully, a good chunk of that debt is denominated in sterling, so a falling pound makes it easier to repay.
It won't be plain-sailing -- but there's no need to brick up the Channel Tunnel just yet.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Eurotunnel abandoned an attempt to enter the ferry business because competition authorities were opposed.
Eurostar trains are operated by a different company but Eurostar pays a fee to use the tunnel.
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