market folly

We're posting up notes from the Sohn London conference 2017.  Next up is Emeric Preaubert of Sycomore Asset Management who pitched a long of ALD Automotive (EPA:ALD).


Emeric Preaubert's Sohn London Presentation

Long: ALD Automotive (EPA: ALD)

ALD is not well known in the investment world. It was recently listed in June this year. Before that it was a subsidiary of Societe General.

ALD is a leader in the car leasing market. The company manages a fleet of 1.5m vehicles in more than 45 countries. It has grown its fleet by high single digits annually over the last 6 years and its revenue by over 20 % per annum (2013-2017).

The company has 3 main sources of revenues: financing margin on the leasing; services; reselling used cars.

Over the last 5 months the stock lost 25% of its value. The market does not like the used cars business. There is a fear that used car prices could decline and in particular that the residual value of diesel cars could fall.

The Volkswagen Diesel scandal acted as a stress test on ALD and they sailed through that without any trouble. They will come through this latest challenge unscathed as well.

In a worst-case scenario, ALD could lose some money on its used car activities. Perhaps car prices could drop as much as they did in the 2008/9 crisis? In the last ten years the company made a profit on its used car sales in all but one year. If there was decline in profitability as there was in 2009, the company could lose 15% of its profit. The would move the company’s P/E ratio from 9 to 12.

The company’s profits are visible. It knows 80% of its revenue when the year begins. If a multiple of 15 is applied to the leasing business and the services business and a multiple of 5 to the used car business the company could trade on a multiple of 14 which would give 50% upside.


Be sure to check out the rest of the presentations from Sohn London 2017.