DISCLAIMER: This isn’t funding recommendation. The Writer is understood for making a lot of errors in his write-ups and can frontrun you every time attainable. DO YOUR OWN RESEARCH !!!!
As at all times in my longer write-up, this publish solely incorporates chosen sections of the write-up- A full pdf is embedded under.
- Administration Abstract
Sixt AG, a family-owned and -run Automobile rental firm from Munich, has been compounding earnings and shareholder returns at a double digit CAGR for the final 20 years. Following Covid, they accelerated their natural progress within the US which now represents ⅓ of their enterprise and is rising quickly at 20% plus p.a..
As most of their opponents (Hertz, AVIS, Europcar) are overleveraged, they are going to proceed to take market share from them within the coming years. The latest (non permanent) points with residual (EV) automobile values depressed valuation multiples in order that Sixt trades at a really low P/E for 2025 (~8 occasions for the Prefs, 11x for the frequent) for what I take into account a top quality firm leading to a sexy threat return profile.
- Background
Sixt is an organization I owned a number of occasions in my funding profession, sadly by no means lengthy sufficient. Throughout the preliminary Covid panic, I purchased a “half” place as part of a wider Covid basket” with none deep basic analysis at the moment. Initially, this turned out to be a superb funding and nearly tripled till the top of 2021, nevertheless since then, the inventory struggled.
When the Pref Shares hit 50 EUR I tweeted that I couldn’t imagine how low-cost the inventory is.
Following that Tweet, I assumed it’s time to dive slightly bit extra into the rental automobile business and see if I ought to “re-underwrite” Sixt or not.
3. Sixt Historical past & some KPIs
3.1. Firm historical past
Sixt was based in 1912 and so technically is the oldest of the massive automobile rental firms. Nevertheless, solely with Erich Sixt, who turned CEO in 1969, Sixt began to increase considerably. Sixt went public in 1986 and opened the primary US Department in 2011. In 2021, Erich Sixt after 42 years lastly handed to steer over to his two sons who now run Sixt as Co-CEOs within the 4th era.
3.2. Some KPIs
We are able to see that over 10 and 20 years (based mostly on 2023), Sixt has been a fantastic compounder. Solely during the last 5 years (EPS 2018 adjusted for DriveNow one off acquire), EPS progress slowed. However one has to do not forget that this time interval features a starting recession (2019), Covid, rate of interest will increase and so on.
It’s additionally price mentioning that each one that progress was achieved organically. To my data, Sixt by no means acquired one other firm.
Full PDF:
10. Why is the inventory low-cost ?
As at all times, when a inventory is affordable, the query is: Are there any completely good causes for the inventory being so low-cost ?
Regardless of the final weak point in European small and midcaps, these elements may play a job:
- A standard theme I hear is that the rental automobile enterprise is a shitty one. I believe that is primarily on account of the truth that the issues of AVIS, Hertz and Europcar are very public, however the success of Enterprise just isn’t. On a P/E foundation, each Hertz and Avis have traded at related multiples (however with much more debt). As Enterprise just isn’t publicly traded, some analysts may take a look at Sixt and determine that it’s even “costly” in comparison with Hertz and Avis.
- Falling residual values for vehicles have impacted Sixt in 2024. Initially, an EBT of 400-520 mn had been forecasted. After Q1, the place they needed to e-book a loss due to surprising depreciation, they needed to minimize the steering once more with the Q2 ends in Might to 350-450 mn EUR. In Q2 as soon as once more they once more diminished the outlook to 340-390 mn EUR. So traders may be afraid that Q3 may comprise extra unfavourable surprises.
- Buyers may nonetheless not totally belief the 2 sons to proceed what Erich has achieved over greater than 40 years. I’ve to confess that I’m additionally not 100% satisfied. Solely time will inform.
- Sixt is clearly additionally uncovered to the general financial scenario. A deepening recession in Europe may soften the demand, each for trip leases and enterprise prospects. Or prospects may commerce down from Sixt’s premium provide to a less expensive competitor.
11. Abstract & conclusion
The preliminary query that I requested myself earlier than scripting this publish was: Ought to I re-underwrite Sixt regardless of the fairly disappointing efficiency over the previous months ?
Thea reply after this train for me is clearly YES.
Sixt is a inventory that gives an fascinating progress story, a powerful monitor report for a really low valuation which for my part creates a really engaging risk-return profile on a mid-term time horizon.
There are clearly some dangers, as talked about my foremost concern is how the sons will carry out as soon as Erich just isn’t round anymore.
In any case, I made a decision not solely to “re-underwrite” the inventory however to extend my publicity by shopping for an extra 1% of the portfolio of Widespread shares.
I would add additional, each to the Prefs and the Commons sooner or later if no unfavourable surprises occur. The date for the discharge of Q3 earnings is November eleventh.
