Zeda share price soars 11% - strong earnings growth in the tough automotive market

Zeda, the JSE listed integrated mobility solutions provider, saw its share price rocket over 11% after its annual results showed how it relied on its diversified business model to counter pressures facing traditional car rental services and vehicle sales.

The group, which owns the Avis brand in South Africa and 10 other sub-Saharan countries, delivered a total dividend of 181 cents per share, a 50% payout aligned with policy, for the financial year to September 30, 2023, its results published yesterday showed. The share price traded at R13.81 on Tuesday afternoon.

"We delivered strong earnings growth and operating margin expansion in a constrained market, while maintaining our commitment to shareholder returns," said the CEO Ramasela Ganda in a statement.

"Zeda achieved a strong set of results, underscoring our solid return on invested capital, profit margins, and remarkable double-digit growth in both earnings and operating profit. These accomplishments are especially significant given the challenging trading environment we navigated," he said.

The strategy to focus on Leasing, Subscription, and the expansion of the Greater Africa business enabled the group to offset the impact of declining used-car sales volumes. Revenue was up 1.7% to R10.65bn, while gross profit increased 3.9% to R4.35bn.

Headline earnings per share increased by 15.7% to 361 cents per share. Net debt stood at R5.18bn. The final dividend came to 126 cents per share.

Revenue from Avis Fleet leasing activities surged to R3.2bn, representing a 15.7% increase over the previous year. Leasing activities in Greater Africa also delivered solid revenue, driven by impressive increases of 37% in Zambia and 73% in Lesotho. Greater Africa now contributes 23.5% of the group overall leasing revenue.

"The exceptional growth trajectory witnessed in the leasing segment is in line with our focus on corporate leasing, heavy commercial, and the Greater Africa region," said Ganda. Avis Fleet manages more than 200,000 vehicles.

Leasing revenue was up 15.7% to R3.2bn, with heavy commercial revenue increasing by 30% and Greater Africa revenue up 26%.

n car rental, operating profit increased with improved utilisation and strong growth in Subscription. Revenue fell 3.4% to R7.4bn, but operating profit was up 23.3% to R872m. Used car revenue was down 4.1%. Subscription volumes were up 53%.

In funding, Zeda successfully accessed the debt capital markets, reducing refinancing exposure and increasing long-term debt. The group's innovation efforts included launching an e-commerce platform to grow the retail segment of the Car Sales Business. Internally, digital channels were enhanced and aligned around a customer-centric model.

Ganda said the shift in the new-car market had exerted downward pressure on the prices of used vehicles, particularly one-year-old models. To mitigate margin dilution, the lives of rental vehicles were extended and sold at an optimal age.

"Although this tactical response has led to a 14.6% decrease in used car sales volume and a 4.1% decline in revenue, it has also boosted profit margins," he said.

The Car Rental Business achieved a 2.1% increase in rental days, driven by strategic commercial partners, local leisure, and the subscription business, in line with the strategy of driving the ownership economy.

On the other hand, the replacement business was adversely affected by lower insurance claims, aggressive pricing in the inbound business, and customers buying down, resulting in overall short-term revenue declining by 2.6% for purely rental business, excluding the sales business.

A sustainable finance framework was introduced, aligning funding with measurable KPIs in renewable energy, water efficiency, and SMME development. Solar systems were installed at five East London sites, and a new waste partnership with Mpact commenced. Board-approved IT and data strategies were embedding intelligence across the business.

."With new licenses secured in East, West and Central Africa, the business is positioned to pursue a more cohesive strategy for Africa, while scaling with purpose. Zeda enters the new year with the strategic clarity, financial strength, and operational momentum to scale with purpose," said Ganda.

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