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Avis: H1 results
Avis Europe announced poor earnings for the half year to June 2005. Turnover declined by 0.6% to €582m and reported pre-tax profits plunged to €7m (1H 2004: €23.8m).
High levels of competition (particularly in France, Germany and the UK) saw revenue per day drop by 2.4% leading to the overall decline in turnover. Leisure revenues were 1% ahead of last year but declined in corporate (-1%), replacement (-2%) and premium (-2%) markets.
The company is in the process of implementing a two phase recovery strategy. Phase 1 involves a planned investment of €15m to increase revenue and reduce costs.
Revenue enhancing measures include strengthening its distribution channels (particularly web based marketing), incentives to stimulate traffic from Avis operations outside Europe and improving customer service (for example by using hand held electronic devices to improve speed in checking in/out). The company is also attempting adopt more flexible approach to pricing to improve yield.
Cost reduction measures include reducing distribution commissions, fleet optimisation and centralising back office work in Budapest.
Phase 2, occurring concurrently with phase 1, is an attempt to focus on more profitable segments of the business.
The company’s recovery strategy looks fine on paper but, one year since implementation is yet to deliver tangible results. Given that Avis Europe has been in steady decline since 1999, the risk averse investor would do well to wait until the evidence of recovery is seen in the bottom line.
Higher oil prices and declines in consumer spending will dampen the market for travel and is a further risk factor.
The share trades at 53p, on a prospective PE (2005 earnings ) of 18.9x which is at the top of the sector range. The yield is 0.8%.
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