Zeda Limited (JSE: ZZD) stands as Africa’s premier integrated mobility solutions provider, offering a comprehensive range of services.
Since its listing on the JSE in December 2022 at its initial opening price of R18.00 per share, the company has encountered a challenging journey on the stock market, witnessing a staggering 40.55% loss in market value, with a 16% decline year-to-date. However, amidst these stock market struggles, Zeda has demonstrated steadfast performance in its financials, showcasing double-digit growth across key metrics for the fiscal year ending 30 September 2023.
Despite challenges stemming from tough macroeconomic conditions and a highly competitive landscape within the mobility sector, Zeda has shown resilience, with both its top and bottom lines expanding, along with a notable increase in its fleet of vehicles. Nevertheless, the disparity between its positive performance and the downward trajectory of its share price suggests a lack of investor confidence, particularly when compared to the broader JSE All Share Index. This disconnect prompts investors to question the factors driving Zeda’s share price lower, highlighting the need for deeper examination and understanding.
Source: Trive – Koyfin, Nkosilathi Dube
Technical
Zeda’s share price has been navigating a downtrend, characterized by trading below its 100-day moving average and within a descending channel pattern.
Initially, the share price encountered oversold RSI conditions at the R10.00 per share level following a downturn. An uptick in upside momentum subsequently sent the share price soaring, establishing the level as a support level. The share price climbed toward the R13.43 per share level, but overbought RSI conditions capped further gains, leading to a subsequent downturn.
This downturn saw the share price break below the 61.80% Fibonacci Retracement Golden Ratio on significant volume, signalling the dominance of sellers in the market. Should selling pressures persist, the R10.00 per share level may attract bargain hunters, given its historical significance as a support level. Conversely, if upside momentum is reignited, the R13.43 per share level could serve as a potential marker for upside movement.
Fundamental
Despite facing challenges such as rising interest rates and a downturn in the used car market, Zeda’s car rental business thrived due to a surge in inbound tourism and corporate activities. Zeda delivered impressive financial results in the 2023 fiscal year, with revenue climbing 12.4% to R9.1 billion and EBITDA growing by 18% to R3.3 billion.
While revenue levels have not yet returned to pre-pandemic levels, the company has witnessed a substantial post-pandemic increase, reflecting the resurgence of global travel and the gradual reopening of economies. This growth underscores Zeda’s resilience and ability to adapt to evolving market conditions, positioning itself for continued success in the mobility sector despite ongoing challenges. Operating profit surged by 23%, achieving an operating margin of 17%, showcasing Zeda’s efficiency in cost management and operational performance. Consequently, this robust performance translated into a remarkable 31% increase in earnings per share, reflecting the company’s ability to generate strong returns for its shareholders amidst challenging market conditions.
Source: Trive – Zeda Limited, Nkosilathi Dube
In the rental business segment, Zeda showcased impressive growth, with a 12% increase in revenue to R6.6 billion and a notable 17% surge in EBITDA to R1.9 billion. This success was underpinned by a robust EBITDA margin of 28%, up 100 basis points, demonstrating the company’s efficiency in operations. Positive performance drivers included a solid 28% growth in the corporate segment, a remarkable 108% recovery in the inbound travel segment, and a strategic 17% expansion of the average rental fleet to meet increased demand. Despite fleet growth, Zeda maintained a sustained utilization rate of 74%, indicating effective management of resources.
In the leasing business, Zeda achieved a 13% revenue increase to R2.5 billion, accompanied by a significant 19% rise in EBITDA to R1.5 billion. The segment’s EBITDA margin expanded to 59%, up 300 basis points, driven by growth in the corporate sector, a notable 44% increase in commercial units, and strong performance in Greater Africa, which saw an 8% revenue growth. Value-added products further contributed to improved margins in this segment.
However, while Zeda experienced a 4.4% growth in retail revenue in the car sale business, margins suffered a decline of 5.2 percentage points. This downturn was attributed to challenges in the used car market, exacerbated by increased inflation and interest rates impacting consumer disposable income.
Source: Trive – Zeda Limited, Nkosilathi Dube
Zeda Group’s financial performance remained robust, with a return on invested capital (ROIC) of 18.7%, surpassing the Group’s weighted average cost of capital (WACC) of 12.8%. Additionally, the company improved its return on equity (ROE) to 36.7%, compared to the prior year’s 32.7%, reflecting efficient capital allocation and strong profitability.
Despite facing challenges post-unbundling from Barloworld, including managing debt and the potential loss of its B-BBEE Level 1 rating, Zeda successfully settled its unbundling debt of R1.55 billion ahead of schedule. Moreover, the company achieved an investment-grade rating from Moody’s, showcasing its resilience and financial strength.
Looking forward, Zeda remains focused on diversifying its offerings, particularly through subscription services like iLease, catering to individual customers. With a strategic emphasis on subscription models and a solid presence in the commercial vehicle rental market, Zeda is poised to maintain its growth trajectory in the years ahead, capitalizing on emerging opportunities in the mobility sector.
Summary
Despite stock market challenges, Zeda Limited showcases resilience with robust financials and strategic initiatives. Trading in a downtrend below its 100-day moving average, Zeda faces headwinds but demonstrates potential support at R10.00 per share. With a focus on diversification and efficiency, Zeda navigates towards sustained growth and investor confidence.
Sources: Zeda Limited, MoneyWeb, Koyfin, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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