Zeda banks on heavy vehicles

• JSE-listed group wants a piece of the pie of increasing road freight activity due to the crisis on Transnet railways

Car rental, leasing and sales group Zeda is looking to profit from Transnet’s rail woes by intensifying its focus on its heavy commercial fleet amid high demand for trucks in logistics.

The strategy, in line with its plan to build a strong and sustainable leasing business to reduce reliance on the tourism industry, comes as the R1.9bn JSE-listed group reported benefiting from the high interest rate environment in which corporates opted to lease fleets rather than own the cars.

Delivering the group’s halfyear results since unbundling from Barloworld last year, CEO Ramasela Ganda on Monday said the “high yielding” heavy commercial unit is the “bread and butter” of Zeda’s leasing segment, which had a plethora of opportunities at its disposal owing to the mishaps of the state-owned railway.

“Certainly with challenges that businesses face on the rail, we are seeing more and more vehicles and freight moving to the road, and that really indicates strong activity levels and opportunity for growth that we see on the heavy commercial side,” Ganda told Business Day.

She said heavy commercial vehicles, around 5.5% of its fleet, will remain a key strategic focus area that has already started to yield new growth opportunities in differentiated sectors. The average rental year on year increased 12% per unit.

The opportunity arises as unending challenges, including mismanagement and rampant theft at state-owned Transnet, have crippled the country’s main railway lines connecting the urban hubs to SA’s ports.

But demand for leased trucks to transport cargo to and from markets or ports, driven mainly by the booming mining, fastmoving consumer goods and ecommerce sectors, is on the rise and Zeda is looking to increase its heavy commercial service offering to these industries.

Reporting that the constraints in new vehicle supply started easing compared with the same period the year before, Zeda said it invested R1.5bn more in rental and leasing fleet assets in 2023 to align with market demand.

Profit for the six months to end-March improved one-fifth year on year to R376.67m and headline earnings per share, a common profit measure in SA that excludes certain items, rose 3.7% to 189.1c.

Operating profit, generated from core operations, rose by a similar margin to R803.2m, and core earnings (ebitda) were up almost one-fifth at R1.67bn.

Despite a winding down of major public sector contracts in the leasing business, Zeda reported increased activity in the period supported by the corporate sector.

Though interest rate hikes, inflation and fuel hikes increased financial pressure on consumers, the high interest environment had the opposite effect on its leasing business, which reported increased activity in the first half of the year.

Ganda said as businesses scramble to mitigate the effects of power cuts on their operations, leasing vehicles rather than owning them is becoming a more attractive option. Additionally, high interest rates provide an opportunity for the sector to use cash for its core business and outsource the fleet.

“We seeing a lot of business moving into the leasing business because of the cash constraint,” Ganda said, “We believe the greater opportunity is still to come when businesses look at the two and realise under this climate it is actually cheaper.”

After strong car rental and solid leasing performance gave good income annuity, Zeda announced it is incorporating van rentals into its rental model to complement the heavy truck lease offering. “Heavy commercial will give us the long haul, then we closing the value chain with our last mile on the Avis van rentals,” said Ganda.

Reporting net debt dropped slightly to R5.1bn. Zeda said it had repaid R721m to industrial conglomerate Barloworld since the unbundling and separate listing in mid-December.

Outlining that the loan balance stood at R822m by endMarch, Zeda vowed to “settle the liability by the end of the calendar year”.

The board decided against declaring an interim dividend as it looks to deal with its legacy debt. Zeda operates Avis and budget fleet businesses and was among companies the hardest hit by the pandemic as airports and travel ground to a halt.

However, the consumer services group, which has been making a bid to reduce its reliance on tourism, said amid a weak local currency it does expect a continued recovery in tourism that will undoubtedly boost its rental segment.

“Sadly, a very weak rand is good for tourists so we can expect a lot of tourists coming to a cheaper Southern Africa — so we expect the businesses in Namibia and SA to see the growth of that.”

Zeda’s share price, which has been struggling to gain traction since its unbundling in midDecember, closed 3% lower at R9.70 on Monday.