Depreciation of used vehicles by Localiza worries the market; firm sees “normalization”

Localiza released results above market expectations in the third quarter, the first with numbers combined with the purchase of Unidas.

But one of the indicators came in the opposite direction: the average depreciation per car.

While in the previous quarter the average depreciation in the car rental area at Localiza was R$ 3 thousand – and R$ 1.2 thousand twelve months ago –, the values ​​rose to R$ 4.3 thousand between July and September. In fleet management, the figure rose to R$4,200 – compared to R$3,000 in the previous quarter and R$1,300 a year ago.

“I expected a value that did not even reach R$ 3,300. If these numbers continue to rise, the market will revise Localiza’s profit projection for the coming years”, says a manager long on the stock.

Yesterday, Localiza shares fell 7.3% with the result; today, they opened down another 4.7%.

For CFO Rodrigo Tavares, there is no reason to panic. In fact, what exists, according to him, is a normalization of the market after years of bonanza for used car sales. With automakers being hit with stoppages both by covid-19 and the lack of parts, used car prices soared – and became an important source of revenue for Localiza and the sector.

Now, the situation is different – ​​with car prices stabilizing and high interest rates affecting sales. No wonder Localiza sold 43,600 cars in the third quarter (10,000 less than Itaú BBA expected) with an average price of R$61,000, 5% lower than the previous quarter.

Therefore, Tavares says that the order within the company is to increase efficiency and speed up the search for synergies from the merger with Unidas.

“The higher margins on used cars were a transitory upside, with cars being sold even at a premium profit, and I believe the market has understood that. With the cycle normalizing, it is clear that the company’s business is to rent and manage fleets”, said Tavares to the Brazil Journal.

The company’s adjusted EBITDA margin stood at 58.9% in car leasing (2.2 pp reduction in the annual comparison) and 73.6% in fleet management (up 8.1 pp in one year).

Either way, Localiza will have to invest more money to renew its fleets. Before the pandemic, the company bought cars with an average price of R$40,000 and a depreciation of R$2,000. Now, the numbers are R$ 80 thousand and R$ 4 thousand, respectively.

From January to September, the company added nearly 100,000 vehicles to its fleet, which has an average age of 15.1 years. Nora Lanari, director of investor relations at Localiza, said that the company is healthy enough to continue expanding the numbers without compromising its finances.

But in the market there is also a view that the stock, despite being linked to a company that has delivered results, may be expensive.

“O price action is a correction given to the level of valuation of Localiza versus the rest of the consumer companies in Brazil,” said another manager.

Source: Brazil Journal