Localiza expects to receive more cars from automakers; RENT3 closes higher after swing

Localiza (RENT3) pointed out, in a conference call to present the results of the first quarter of 2022 (1Q22) this Tuesday (3), that there has been acceleration in vehicle deliveries since the first quarter, and that this is expected to continue to occur in the second.

Rodrigo Tavares de Sousa, CFO of the company, stressed that there are uncertainties, with factors such as the War in Ukraine weighing negatively. However, in case of a slowdown in deliveries in the second quarter, these should be compensated in the third, he evaluated.

The executive also stated that the company maintains an “excellent relationship” with the automakers, amid the scarcity of car supply. At the moment, with the fall of restrictions arising from the pandemic, the company has been seeking to hold more meetings with executives from the automakers.

Asked about the rapid improvement in theft indicators in the first quarter, the CFO said the fleet is now more connected. “There is now a more rigorous process using credit and fraud rating technology and algorithms, which have led to faster recognition of thefts in the past quarter. Thus, there were fewer thefts recognized in the first quarter”, he pointed out.

Regarding the improvement in margins, both in the RAC (car rental) segment, up 14.2 points on an annual basis, and in the GTF (fleet management and outsourcing), Nora Lanari, director of investor relations, highlighted some factors for good performance.

They are, the increase in revenue of 31.6%, with the volume of daily rates rising 2.7%, and leading to a rise in prices; improvement of 4 percentage points in the PDD (provision for bad debts); 2 percentage points of effect due to PIS/Cofins credits; less spending on third-party services; and improvement in maintenance equivalent to one percentage point in the margin, especially due to the better performance in terms of theft.

With high prices and cost of financing cars, the company also stressed that it reinforces rent for app driver.

Nora stated that in the high season – in the fourth quarter and in the first quarter – there is a very strong rent for individuals. Normally, after the first quarter, there is a reduction in seasonality and an increase in the relevance of long-term rents, with an increase in one-off rents again in the fourth quarter.

At the moment, the company seeks to reduce the cost for the app driver segment, offering an alternative as a substitute for high car prices and interest for financing. In this context, the demand for car rental as an alternative to purchase is accelerated.

Average age of rental cars increases, satisfaction remains

Asked in a conference call about the increase in the average age of the car rental fleet, Sousa said that the process of deactivating the fleet follows technical criteria. Currently, there is an extension of the usage time of more popular cars, and a greater deactivation of premium cars.

He says that, even with the changes, the NPS (Net Promoter Score, methodology for measuring customer satisfaction) is high and that, if there is an increase in dissatisfaction, the strategy can be reassessed.

Nora Lanari stated that the average age of the operating fleet is currently 16.7 months; a year ago it was at 12.6 months; and historically revolves around 7 months. She says that there is an “intelligence of allocation of cars by segment”, in order to maintain the NPS.

analysis

Overall, Localiza’s numbers were seen as positive, which led to a bullish session for equities. The advance was 1.90%, at R$ 52.45, although in deceleration after having risen 4.68% earlier. The Ibovespa closed with a slight drop of 0.10%.

Bradesco BBI highlights that the car rental margin recovered, while net revenue was above BBI’s estimates by 3%, but came 4% below the consensus, due to rent-a-car (RAC) revenue increasing 36 % on an annual basis, with daily rental prices rising; higher revenue from fleet management, driven by daily price increases; and pre-owned revenue falling, as Localiza sold fewer cars in the quarter.

Ebitda was negatively impacted by R$12 million in expenses related to the merger with Unidas. “If we adjust for this effect, the adjusted Ebitda would be R$ 1.2 billion, surpassing the BBI estimate of R$ 1.0 billion and the consensus of R$ 1.1 billion”, he points out. Bradesco BBI maintains an outperform assessment (performance above the market average) for Localiza and a target price of R$67.

For XP analysts, the main positives were the strong performance of RAC Ebitda due to sequentially higher rates and margin improvement, reflecting efficiencies captured throughout 1Q22, as well as the continuous strong Seminovos operation despite only 14.5 thousand cars sold in the quarter.

On the negative side, analysts note the still-harm car-buying environment, leading to a sequential volume drop in the RAC division, due to supply chain-related bottlenecks amid the automotive industry. Even so, they reiterate the positive view and purchase recommendation for Localiza.

Credit Suisse’s analysis team says that Localiza delivered surprisingly strong results in 1Q22, beating estimates. Overall, consolidated Ebitda was 7% above Credit’s estimates, while net income was 11% higher. “Localiza surpassed our Ebitda estimates in all three divisions, mainly in RAC and Seminovos”, he highlights. The bank maintains rating outperform for Localiza, and a target price of R$74.

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