SIXGF - Sixt: A Driving Success - The Family Legacy Holds Global Dominance

2023-09-18 10:27:42 ET

Summary

• Sixt is a global mobility giant and the world's largest car rental company.
• The company's commitment to family values and long-term thinking sets it apart in the market.
• Sixt's superior business model, impressive margins, and financial strength make it a compelling long-term investment.

Introduction

Nestled in the charming town of Pullach, Germany, a global mobility giant thrives. As the world's largest car rental company, Sixt ( SIXGF ) stands as a testament to enduring success in an industry notorious for cutthroat competition and slim profit margins. In this article, I will explore the reasons behind my positive stance on Sixt, emphasizing what traits set it apart in the market. I will delve into the companies' commitment to family values and why this fuels continuous innovation, creating a business that positions it for sustained growth, in particular the promising trend of car sharing and Sixt's ability to outperform its competitors, overall making it a compelling long-term investment for me.

A Family Business and its Advantages

At the helm of this global enterprise is Erich Sixt , still leading the way at the age of 76, with successors Alexander and Konstantin Sixt ready to carry on the legacy.

The family's influence extends to the ownership structure, with the Sixt family commanding 58% of the company's shares, ensuring decisions align with the long-term interests of all shareholders.

Sixt's journey began over a century ago, in 1912 with just three vehicles. Its resilience shone through the challenging post-World War II era, and in 1951, Hans Sixt's vision gave birth to Auto Sixt in Munich. In 1969, Erich Sixt took the reins, propelling the company to dominate virtually every German airport. Going public in 1986 opened doors to international expansion, solidifying Sixt's position as the world's leading car rental giant that it is today.

The Value of Long-Term Thinking

One of the most significant advantages I see in investing in Sixt is its status as a publicly listed family business , characterized by a commitment to long-term thinking. Unlike some publicly traded companies, which prioritize short-term gains, family businesses focus on building a lasting legacy. This approach leads to strategic decisions that prioritize the company's longevity over immediate profits. Stewardship is a core value upheld by such businesses, and Sixt is no exception. The family sees itself as the custodian of the business, responsible not just for their generation but for generations to come. This perspective encourages a prudent and sustainable approach to business operations, emphasizing not only profit maximization but the thriving of the business for decades or even centuries.

Another aspect I see is leadership. While continuity in family-business leadership can sometimes be critiqued for a lack of diversity, in my opinion, it mainly fosters a strong corporate culture and a deep understanding of the business's core values. This continuity often translates into consistent decision-making, promoting long-term stability and success.

A Superior Business Model Addressing the Future of Mobility

Urbanization is a key driver of growth in the car rental sector . As more individuals flock to cities, owning a car becomes impractical due to limited parking, traffic congestion, and the financial burden of insurance. Sixt's business model, which I would describe as a "mobility service provider," diversifies its offerings beyond traditional car rentals while still generating the majority of its revenue and profit from this core business. With a fleet of approximately 280,000 vehicles , Sixt offers a range of services:

1. Traditional Car Rental: Customers can rent a car at their preferred location for a specified duration, with the added convenience of door-to-door delivery.
2. Car Sharing: Tailored for short-term rentals, this option caters primarily to urban dwellers needing quick, minute-billed trips that can be easily parked anywhere within the city.
3. Auto-Flat: A novel take on leasing, offering transparent pricing and vehicle replacement every six months with the flexibility to cancel at any time.

In my view, car sharing, in particular, holds immense potential in the coming years, with the market projected to grow significantly, aligning with the trend of environmental awareness among people, especially the younger generation. Studies show that even 61.7% of individuals under 30 would give up car ownership. Revenue in the car-sharing market is expected to reach US$12.89 billion in 2023, with a projected market volume of US$15.92 billion by 2027 and 63.15 million users.

Impressive Margins

In the industry of renting out cars, competition is fierce; however, Sixt stands out with an impressive 10% profit margin, far exceeding the industry standard of around 3%.

This remarkable feat, from my perspective, can mainly be attributed to a premium strategy, with nearly half of Sixt's fleet comprised of Audi, BMW, and Mercedes-Benz vehicles. Premium offerings reduce price pressure, as customers willingly pay for top-notch service. Additionally, innovative marketing campaigns, recognizable orange branding, and relentless digitalization contribute to Sixt's profit margin success as well.

Financial Strength

Furthermore, Sixt maintains a robust equity base and shares substantial dividends while retaining profits within the company. In the last financial year, 2022 , Revenue was reported at roughly $3 billion, an increase of about 35% YOY. EBITDA increased by 21.4% compared to the previous year, reaching EUR 699.4 million, and the net profit after taxes rose by 23.2% to EUR 385.7 million.

Expanding Horizons

Despite challenges in recent years such as the semiconductor crisis and supply chain disruptions, Sixt increased its global rental fleet in corporate countries by over 10% compared to 2021. Recent improvements in OEM capacity signal a positive outlook, with Sixt planning substantial fleet expansion. Internationalization efforts have also been successful, with foreign revenue rising from 67.2% to 71.4% year-on-year. Expansion into the United States and Canada presents lucrative opportunities, particularly in the car-sharing market.

Dividends

A Strategic Approach: Sixt operates on a cyclical business model, choosing to distribute dividends when financially robust. In 2018, the dividend per share was approximately EUR 2. Notably, Sixt offers both preferred and common shares, each with its unique benefits. Pending Supervisory Board approval, the Management Board plans to propose a dividend of EUR 4.11 per ordinary share and EUR 4.13 per preferred share, alongside a special dividend of EUR 2.00 per ordinary and preferred share at the upcoming Annual General Meeting for the past financial year.

Risks to Consider

While Sixt SE presents a compelling investment opportunity, as prudent investors, it's essential to be aware of potential risks that could impact our investment strategy. The main risks include:

1. The car rental industry is highly competitive, with many established players and emerging disruptors. Increased competition could potentially lead to pricing pressure, affecting profit margins.
2. Economic recessions or downturns can lead to reduced travel and leisure spending, which could impact Sixt's revenue and profitability.
3. The car rental industry is subject to various regulations, including environmental standards, safety requirements, and taxation policies. Changes in regulations or taxation could impact Sixt's operations and costs.
4. Rapid technological advancements, such as the rise of autonomous vehicles or changes in consumer preferences, could disrupt the traditional car rental business model.
5. As seen during the semiconductor crisis, disruptions in the supply chain can impact vehicle availability and fleet management, potentially affecting Sixt's ability to meet customer demand.
6. International expansion exposes Sixt to geopolitical risks, such as currency fluctuations, political instability, and trade disputes, which could impact its financial performance.
7. Sixt's revenue is closely tied to tourism and travel trends. Any prolonged decline in tourism or restrictions on international travel could adversely affect the company.

Conclusion

Overall, Sixt SE stands as a beacon of success in the fiercely competitive car rental industry. Its commitment to family values, long-term thinking, and innovation in mobility services positions it for sustained growth. As urbanization continues and environmental awareness grows, Sixt's focus on car sharing and premium service offerings aligns perfectly with evolving consumer preferences. With impressive margins, financial strength, and expanding global presence, Sixt represents an enticing investment opportunity for those seeking long-term value in a family-run business that prioritizes the future. Whether you're a seasoned investor or just beginning your investment journey, Sixt's unique combination of heritage and innovation makes it a compelling choice for those looking to navigate the complex landscape of investment opportunities. To me personally, as a long term investor, Sixt holds an intriguing opportunity.

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