Localiza Rent A Car SA – Value Analysis (SAO PAULO:RENT3) : January 5, 2017

Capitalcube gives Localiza Rent A Car SA a score of 61.

Our analysis is based on comparing Localiza Rent A Car SA with the following peers – Companhia de Locacao das Americas and Marcopolo SA Pfd (LCAM3-BR and POMO4-BR).

Investment Outlook

Localiza Rent A Car SA has a fundamental score of 61 and has a relative valuation of OVERVALUED.

Fundamental Score

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Company Overview

  • Taking peer performance into consideration, relative performance over the last month and last year is around the peer median.
  • Localiza Rent A Car S.A. currently trades at a higher Price/Book ratio (3.65) than its peer median (1.25).
  • RENT3-BR‘s operating performance is relatively good compared to its peers. The market currently does not expect high earnings growth relative to its peers but seems to expect the company to maintain its relatively high rates of return.
  • RENT3-BR‘s median net profit margins and relatively high asset efficiency give it some operating leverage.
  • Compared with its chosen peers, changes in the company’s annual earnings are better than the changes in its revenue, implying better than median cost control and/or some economies of scale.
  • Over the last five years, RENT3-BR‘s return on assets has improved from median to better than the median among its peers, suggesting the company has found relative operating advantages.
  • RENT3-BR‘s revenue growth in recent years and current P/E ratio are both around their respective peer medians suggesting that historical performance and long-term growth expectations for the company are largely in sync.
  • The company’s level of capital investment suggests it might be under-investing in a business with above median returns.
  • RENT3-BR seems too levered to raise additional debt.

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Leverage & Liquidity

RENT3-BR would seem to have a hard time raising additional debt.

  • With debt at a relatively high 30.13% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 64.67%), and relatively tight interest coverage level of 1.66x, RENT3-BR would have a hard time raising much additional debt. The company has a Constrained profile in terms of its ability to take on further debt.
  • All 2 peers for the company have an outstanding debt balance.

RENT3-BR has maintained its Limited Flexibility profile from the recent year-end.

  • RENT3-BR‘s interest coverage is similar to last year’s low of 1.62x, which compares to the 2013 high of 3.59x.
  • Compared to 2015, interest coverage has remained relatively stable for both the company (1.66x) and the peer median (0.95x).
  • RENT3-BR‘s debt-EV has declined 14.26 percentage points from last year’s high and is now below its five-year average debt-EV of 31.95.
  • The decrease in its debt-EV to 30.13% from 44.40% (in 2015) was also accompanied by a decrease in its peer median during this period to 64.67% from 87.16%.
  • Relative to peers, debt-EV rose 8.23 percentage points.

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Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Companhia de Locacao das Americas 88.1 1.74 0.95 58.06
Marcopolo SA Pfd 64.67 1.89 0.46 8.83
Localiza Rent A Car S.A. 30.13 1.05 1.66 66.2
Peer Median 64.67 1.74 0.95 58.06
Best In Class 30.13 1.89 1.66 66.2

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Company Profile

Localiza Rent A Car SA engages in the provision of car leasing and fleet management. It operates through the following segments: Car Rental, Fleet Rental, and Franchising. The Car Rental segment refers to car rentals in locations located inside and outside airports and offers among individuals and corporations as well a by insurance companies and car manufacturers that offer replacement vehicles to their customers in the case of accidents or mechanical repairs during the insurance or warranty term. The Fleet Rental segment is the management of fleet rentals for companies for long periods. The Franchising segment pertains to the management and granting of the right of use of the Localiza brand, including the transfer of the know-how required to operates the business. The company was founded by Antônio Cláudio Brandão Resende, Flávio Brandão Resende, José Salim Mattar Jr., and Eugênio Pacelli Mattar on May 17, 1973 and is headquartered in Belo Horizonte, Brazil.

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