Hertz goes to post-bankruptcy list

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A logo of the car rental company Hertz is seen on a building during the coronavirus disease (COVID-19) outbreak in Nice, France on May 27, 2020. REUTERS / Eric Gaillard

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NEW YORK, Nov. 9 (Reuters Breakingviews) – Hertz Global has experienced a phenomenal recovery in its pandemic woes. After going bankrupt in 2020, the car rental company posted a valuation of $ 20 billion, including debt, in his share purchase transaction, the price of which was on Monday. An increase in travel and a corresponding increase in the shares of rival Avis Budget (CAR.O) help justify Hertz’s price tag. But a car shortage is holding back growth, and ridesharing is still an age-old threat, and Hertz is now worth a little more than in 2019.

It helped the trips come back so quickly that the car rental companies were working overtime. Avis Budget’s market capitalization soared to $ 16 billion, thanks to an almost eight-fold increase in its share price in the past 12 months. It has an enterprise value of around 3 times estimated sales in 2021, according to Refinitiv.

Hertz had about $ 5 billion in sales in the first nine months of the year, a third more than last year but about half of what it was in the total year for 2019. Assuming he increases his sales to the same rate than Avis, it would be valued at a third less than its counterpart, suggesting that the price obtained was fair.

The problem is, before the Covid-19 pandemic, Avis’s multiple was about half of what it is today. Parts of the industry’s image are improving. Electrification and better software could help cut costs, and some investors might even believe that one day car rental companies could reinvent themselves into delivery companies.

But the industry also has the same challenges. Car rental has always been a very competitive business, with low margins. Any benefit, for example Teslas storage Read More, is likely to be copied. Additionally, ridesharing companies like Uber Technologies (UBER.N) are likely to continue to reduce the need for people to rent cars.

This suggests that sales might struggle to grow, and even if they do, the valuations of both companies could still easily revert to historic levels. In this case, Hertz’s new list will look irrelevant.

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NEWS CONTEXT

– Hertz Global shares began trading on the Nasdaq on November 9, after some existing post-bankruptcy lenders agreed to sell 44.5 million shares at $ 29 each. It was at the top of the listed price range and an 11% discount from the November 8 closing price in over-the-counter trading.

– Hertz filed for Wisconsin Bankruptcy in May 2020. The company emerged in June after a group consisting of Certares Opportunity, Knighthead Capital Management and Apollo Global Management injected $ 5.9 billion in equity.

Editing by Lauren Silva Laughlin and Amanda Gomez

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