BROKERS’ NOTES: Buy Zeda, sell MultiChoice

Chantal Marx, head of external research: FNB Wealth & Investments

BUY: Zeda

 Zeda was unbundled from Barloworld late last year and, so far, the share price performance has been dismal. Zeda operates the Avis and Budget global brands, under a long-term licence agreement with the Avis Budget Group. Zeda is a market leader in car rental and leasing locally and in several Sub-Saharan African countries. We think the company will continue to benefit from a recovery in international, domestic and business travel with a much leaner operating model post-Covid to drive margins. While it is very competitive, the barriers to entry in car rental and leasing are quite high. This is a cyclical business — but even considering this, the valuation (approximately 4 times forward p:e on our numbers) looks attractive. A possible catalyst could be 1H23 results in May or a trading statement end-March/beginning April.  

 SELL: MultiChoice

Fundamentally, revenue growth has been OK — and we may have seen some support from continued high sporting activity and translation gains from the Rest of Africa (ROA) business. But the consumer climate in SA is extremely challenging and load-shedding may have limited new connections. Margins will still be supported, but this may be offset by pressure from higher dollar-content costs. While we still like the company in the longer term (due to lower ROA losses, sport exposure and unrivalled local content offering), we think the stock may be due for a temporary correction after a solid run year to date. Our ideal short-entry level is R131 with a target of R120.