When stumbling over Sixt I have invariably to think of one of my friends in consulting who always used six for rental cars, I believe. And I can absolutely see why. A little better Service, experience, less negative surprises, quicker processes and getting reimbursed anyway. After getting used it is a small step to use as a default option in holidays I guess. I very much see Sixt as a better or the best player within a shitty cyclical industry. If funding will kind of dry up for junk players I don't know? They would probably mostly be able to get asset backed funding, esp. if OEMs want to sell volumes, won't they?
The junk players already use asset based financing extensively. However, with residual car values delcining, this creates its own problems, i.e. collateral calls etc.
Thx for the update. For me a key problem with Sixt is the "black-box" nature. For example management doesn´t want to disclose how much they are spending on the US expansion and what their ROIC expectations on these investments is. Consequently, finding out what the "normalized" profitability (taking into account the growth investments) is, is almost impossible. The volatile nature of near-term earnings power (residuals, depreciation assumption, pricing) further complicates the case. Historically, Sixt is clearly a value-creator and compounder, but the black box nature and the doubts regarding the succession (management) make it difficult to (somehow blindly) under-write the case. Other key points for me are: A) Sixt becomes riskier, the bigger the US share gets (US is not a buyback market) B) EV adoption will make residual value calculation more difficult C) Sixt effective has been serving 2 sets of clients: car renters and the German premium OEMs. Can they still extract value from OEMs who see Sixt as a marketing channel ? D) Sixt has benefitted from competitors over-leveraging. In car rental there will always be an event-risk (geopolitics, etc) and this will kill you if you´re over-extended. The ownership nature of the competitors always made them squeeze too much juice in good times just to fall flat when event risk hit. But they could adapt eventually. E) Finally, I think the sons are pushing too hard in order to impress their father (which is natural), but his could destroy the culture at the firm (fluctuation is already high) and make it difficult to attract talent. --> I also own Sixt, but I can understand why it is so cheap.
Good point about the US growth leading to more volatility due to almost zero buyback arrangements. SIX went all-in re e-Cars which was too aggressive. Manheim index offers a fair helping hand in assessing residual value trends as they report pretty granular. And top line/number of vehicles sold at Carvana can also indicate Trends, so do better financing costs. EBT margin should re-approach 10% next year
When stumbling over Sixt I have invariably to think of one of my friends in consulting who always used six for rental cars, I believe. And I can absolutely see why. A little better Service, experience, less negative surprises, quicker processes and getting reimbursed anyway. After getting used it is a small step to use as a default option in holidays I guess. I very much see Sixt as a better or the best player within a shitty cyclical industry. If funding will kind of dry up for junk players I don't know? They would probably mostly be able to get asset backed funding, esp. if OEMs want to sell volumes, won't they?
https://searching4value.wordpress.com/2023/01/20/some-experience-with-sixt-six3-gr/
The junk players already use asset based financing extensively. However, with residual car values delcining, this creates its own problems, i.e. collateral calls etc.
Thx for the update. For me a key problem with Sixt is the "black-box" nature. For example management doesn´t want to disclose how much they are spending on the US expansion and what their ROIC expectations on these investments is. Consequently, finding out what the "normalized" profitability (taking into account the growth investments) is, is almost impossible. The volatile nature of near-term earnings power (residuals, depreciation assumption, pricing) further complicates the case. Historically, Sixt is clearly a value-creator and compounder, but the black box nature and the doubts regarding the succession (management) make it difficult to (somehow blindly) under-write the case. Other key points for me are: A) Sixt becomes riskier, the bigger the US share gets (US is not a buyback market) B) EV adoption will make residual value calculation more difficult C) Sixt effective has been serving 2 sets of clients: car renters and the German premium OEMs. Can they still extract value from OEMs who see Sixt as a marketing channel ? D) Sixt has benefitted from competitors over-leveraging. In car rental there will always be an event-risk (geopolitics, etc) and this will kill you if you´re over-extended. The ownership nature of the competitors always made them squeeze too much juice in good times just to fall flat when event risk hit. But they could adapt eventually. E) Finally, I think the sons are pushing too hard in order to impress their father (which is natural), but his could destroy the culture at the firm (fluctuation is already high) and make it difficult to attract talent. --> I also own Sixt, but I can understand why it is so cheap.
Fair points. The counterargument is that the stock is clearly not priced for perfection. We will see how things work out.
Good point about the US growth leading to more volatility due to almost zero buyback arrangements. SIX went all-in re e-Cars which was too aggressive. Manheim index offers a fair helping hand in assessing residual value trends as they report pretty granular. And top line/number of vehicles sold at Carvana can also indicate Trends, so do better financing costs. EBT margin should re-approach 10% next year