DISCLAIMER: This isn’t funding recommendation. The Writer is understood for making plenty of errors in his write-ups and can frontrun you at any time when doable. DO YOUR OWN RESEARCH !!!!
As all the time in my longer write-up, this put up solely comprises chosen sections of the write-up- A full pdf is embedded beneath.
- Administration Abstract
Sixt AG, a family-owned and -run Automotive rental firm from Munich, has been compounding income and shareholder returns at a double digit CAGR for the final 20 years. Following Covid, they accelerated their natural development 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 may proceed to take market share from them within the coming years. The latest (short-term) points with residual (EV) automotive 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 contemplate a top quality firm leading to a lovely danger return profile.
- Background
Sixt is an organization I owned a number of occasions in my funding profession, sadly by no means lengthy sufficient. Through the preliminary Covid panic, I purchased a “half” place as part of a wider Covid basket” with none deep elementary analysis at the moment. Initially, this turned out to be a superb funding and virtually tripled till the tip of 2021, nonetheless 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 believed it’s an excellent time to dive slightly bit extra into the rental automotive 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 automotive rental firms. Nevertheless, solely with Erich Sixt, who turned CEO in 1969, Sixt began to broaden considerably. Sixt went public in 1986 and opened the primary US Department in 2011. In 2021, Erich Sixt after 42 years lastly handed to guide 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 an ideal compounder. Solely over the past 5 years (EPS 2018 adjusted for DriveNow one off achieve), EPS development slowed. However one has to keep in mind 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 development was achieved organically. To my information, Sixt by no means acquired one other firm.
Full PDF:
10. Why is the inventory low cost ?
As all the time, when a inventory is affordable, the query is: Are there any completely good causes for the inventory being so low cost ?
Regardless of the overall weak point in European small and midcaps, these elements may play a job:
- A typical theme I hear is that the rental automotive enterprise is a shitty one. I believe that is primarily because of the truth that the issues of AVIS, Hertz and Europcar are very public, however the success of Enterprise will not be. On a P/E foundation, each Hertz and Avis have traded at related multiples (however with much more debt). As Enterprise will not be publicly traded, some analysts may take a look at Sixt and resolve that it’s even “costly” in comparison with Hertz and Avis.
- Falling residual values for automobiles 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 reduce the steerage once more with the Q2 leads to Could to 350-450 mn EUR. In Q2 as soon as once more they once more decreased the outlook to 340-390 mn EUR. So traders is likely to be afraid that Q3 may include extra detrimental surprises.
- Traders may nonetheless not absolutely 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 state of affairs. 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 penning this put up 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 provides an fascinating development story, a powerful observe document for a really low valuation which in my view creates a really engaging risk-return profile on a mid-term time horizon.
There are clearly some dangers, as talked about my essential concern is how the sons will carry out as soon as Erich will not be round anymore.
In any case, I made a decision not solely to “re-underwrite” the inventory however to extend my publicity by shopping for a further 1% of the portfolio of Widespread shares.
I’d add additional, each to the Prefs and the Commons sooner or later if no detrimental surprises occur. The date for the discharge of Q3 earnings is November eleventh.
