Zeda, which operates the Avis and Budget car rental businesses, is to expand into new areas to take advantage of growth opportunities.
Zeda, which was spun out of Barloworld, was previously reliant on the cyclical tourism market, but is now adding new services, including long-term monthly car rental for businesses and consumers; adding vans to its portfolio to cater to the demand from the courier industry; and increasing its focus in the commercial heavily vehicle market that is booming thanks to challenges with the rail network.
CEO Ramasela Ganda said this week after releasing its results for six months to March that there was an increase in middle-class consumers taking up rental subscriptions. Some are for short-term work projects, while others rent a vehicle for their children who may not have a credit record to buy a car and don't want long-term debt commitments.
In particular, the “luxury car market is where we are seeing demand. We are digitising the process to make it faster and quicker to choose a specific car rather than a category” [which is the practice with the existing model], she said.
Commenting on the delivery industry, Ganda said: “We already have good contracts in the bakkies segment and see this as a high-yield business. This is a good business we are entering.”
The leasing period ranges from one to four years, while the car rental subscription model is one to 12 months.
Ganda said rental and leasing are in demand as the cost of owning a vehicle is high. “Subscription takes away the worry of maintenance and other costs that come with owning a vehicle,” she said.
The heavy commercial vehicles, where leasing contracts run to about nine years, continue to be a focus area, which has started to yield new growth opportunities, said Ganda.
Zeda recorded a strong recovery post-Covid as corporate travel and the inbound tourist return.
Total car rental activities operate at 26.8% of pre-pandemic levels, with inbound still lagging at just below half. In addition to inbound, an expected increase in international airlines’ activities using chauffeur-driven vehicles presents “us with an opportunity to continue to grow the business further in absolute terms”, said Ganda.
According to Stats SA’s Tourism Migration report released on Tuesday, more than 1.89-million foreign travellers passed through South Africa’s ports of entry/exit in April — up 72.8% from April 2022.
Hotel group Southern Sun said last week trading levels continued to recover as local and international travel patterns normalised and demand for conferencing and events increased.
Dumisani Ndlovu, equity analyst at All Weather Capital, said it was encouraging to see the group look at other growth avenues, such as their subscription business.
Zeda has embarked on a review programme of some of its underperforming operations with a possibility of exiting some markets if they do not recover, such as Ghana, where group’s expenses are in US dollars while revenue is in cede.
“For us to run a successful business outside SA we need to ensure that every business is profitable,” said Ganda.
In Mozambique, Zeda’s decision to exit the airport premises for a cheaper alternative had yielded costs savings and boosted profitability. It provides shuttle services to customers and also delivers cars to the airport.
Commenting on Zeda’s overall financial results for the six months to March, Casparus Treurnicht, portfolio manager and research analyst at Gryphon Asset Management, said: “Zeda needs to pay down substantial amounts of debt to put it on stable ground to operate as a stand-alone company after the unbundling. If some major catastrophe happens it might not be able to survive given its current debt levels.”
Zeda's debt is about R9bn.
Treurnicht said investors need to be more patient regarding dividends. “There are a few vectors working in its favour but this is a very cyclical business,” he said.
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