The Biggest Winner in the U.S. Car-Rental Boom Is From Germany
German car-rental company Sixt was hit by the slump in global travel during the pandemic.
But the shares (ticker: Six2: Germany), still managed to increase 17% over the past six months to €117.60 ($137.83). Sixt, which operates in more than 100 countries, including through franchisees, avoided posting a loss in 2020 largely due to cost cutting and a one-off financial gain from the sale of a leasing business.
But car rentals are picking up in the U.S. and also Europe, which is about six to eight weeks behind, because of the success of vaccine programs, and people are traveling again. Sixt is the fourth-largest player in the U.S. with a market share of 2%, while in Europe it has 17%, including franchisees. Last year, Sixt acquired concessions at 10 U.S. airports from the parent company of Advantage Rent a Car.
The global shortage in semiconductors—the brains that operate new vehicles—could be key to pushing Sixt’s stock higher. The impact means car rental prices have soared everywhere.
Hela Zarrouk, an analyst at broker Oddo BHF, has an Outperform rating on the stock, and forecasts a 25% rise to 146 euros ($171). She also raised her 2021 pretax profit estimate by 15% to €180 million, which takes into account higher rental prices over the next few quarters.
“In the U.S., vehicle rental prices rose 30% in May 2021 vs. May 2019 with growth as strong as 50% in Hawaii or Florida,” she wrote in a report. “Sixt is currently the player best positioned to benefit from an upturn in demand. The development in the U.S. is set to drive growth.”
The Bavaria-based company has 6,900 workers and a market value of €4.7 billion. It fetches a multiple of 27.5 times this year’s expected earnings and is valued at a 20% premium to its peers.
It posted a consolidated profit of €2 million in 2020, down from €247 million the year before, on annual revenues of €1.5 billion for 2020.
Erich Sixt, who took over the company from his father in 1969, stepped down as CEO in June to become chairman of the supervisory board. He was succeeded by his sons Alexander and Konstantin, who are now the company’s co-CEOs. The family control 58.3% of the shares.
Erich Sixt has said that the company is using technology to offer customers options. The company has its traditional car rental business—car rentals for a fixed period of time. Sixt Share is a service for short-term rentals that is flexible on trip duration and return location, much like car-sharing alternative Zipcar in the U.S.
Sixt Ride, another service, embraces the gig economy, acting as a platform for third-party partners to offer ride-hailing worldwide. It claims to already have access to a network of more than one million drivers worldwide, and has a partnership with Lyft.
These services are provided through one application on smartphones, with the company now describing itself as a “premium provider of mobility” because most of its cars are just three months old and high end—BMWs and Mercedes.
“We want to inspire our customers with digital premium mobility and simplify and enrich their lives without having to own their own vehicle,” Alexander Sixt told Barron’s.
In an update on Thursday, the company noted a significant pick-up in demand in the second quarter, particularly in the U.S. It posted consolidated earnings before taxes of €77.9 million in the second quarter, up 6.3% from €73.3 million in the same period in 2019, although quarterly operating revenue of €498.1 million was still about 20% below 2019’s level.
Sixt could give investors on a ride to more growth as it sets itself apart from rivals with its use of technology.