Share watch: German car renter driving ahead in a challenging market
I've always had a soft spot for car rental companies.
Traditionally it has been possible to start small in the business and grow big, especially through acquisitions. All the big names have followed that pattern.
They have also been innovative in their advertising. But it is not a business that changes too much; at least that is what I thought until I discovered DriveNow, a car-sharing service the German motor giant BMW set up with the company under the microscope this morning, the global car renter, Sixt SE.
BMW and Sixt have taken the example of the city bicycle renters and applied it to cars. If you sign up to the service you can fly into cities like Munich, London, Copenhagen, Brussels, Milan and a whole lot more; find a BMW parked in a given location; use your DriveNow app to access the car and be charged to use the vehicle which includes fuel, insurance and parking.
When you are finished you park in the city centre and go about your business. The traveller to Berlin, for instance, can find well over 1,000 'Beemers' parked around the city waiting to be taken out for a jaunt.
Sixt has the scale to take on such a venture. It has a global presence with 2,200 offices worldwide, as well as representatives in more than 100 countries (including Ireland) and has 6,200 employees.
The company is a family operation, founded in 1912, by Martin Sixt. In 1951, it entered the car rental business and for the next two decades opened branches at all major German airports. By 1986, it was traded on the German stock exchange.
In the early 2000s, it found itself under siege from a hedge fund, which it successfully defended.
Today, Sixt car rental business accounts for 70pc of group revenues and dominates the German market with 30pc market share. The company offers car rentals, limousine services, sports and luxury cars, and products like MyDriver and the aforementioned DriveNow.
The innovative scheme with BMW is six years old. It is available in 11 European cities and has 815,000 registered customers. The group continued its success in 2016 showing record revenue and earnings. Revenues of €2.4bn were up 10pc on the previous year and earnings at €218m show an impressive increase of 18pc. Earnings per share saw a 25pc increase to €3 per share. Its success was due to its international expansion particularly in the US.
The last five years have been good for investors, with shares rising from €13 per share to a high of €56 mid-last year. Since then they have fallen back slightly to €52 with a price earnings multiple of 17.
Sixt has a shareholder friendly dividend policy which is probably not all that surprising, given that the family still controls almost two thirds of the group. Total dividend payouts increased €6m to €78m and dividend per share is now €1.65 on the previous year.
Given the disruption emerging in the motor industry, how will it impact on Sixt? The company is optimistic in the short term but in the medium term it has to cope with the considerable changes with the arrival of the technologies that will revolutionise the auto business.
A solid German company with a solid dividend, worth considering but not right now.
Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.