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Viking Global’s New Position in Avis Budget Group

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Viking Global and Avis Budget Group

Viking Global Investors started a new position in Avis Budget Group (CAR). The fund bought 5,020,701 Avis Budget Group shares. The shares were worth $333 million. According to the latest 13F filings for 4Q14, it accounted for 1.53% of its total portfolio.

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About Avis Budget Group

Avis Budget Group is a leading global provider of vehicle rental and car sharing services. It operates through three brands:

  1. Avis
  2. Budget
  3. Zipcar

Avis and its licensees operate Avis and Budget brands in more than 175 countries. Avis Budget Group has a rental fleet of 545,000 vehicles.

In 2014, Avis completed 35 million vehicle rental transactions. About 67% of Avis’ rental revenue accounted for on-airport locations.

In 2013, Avis acquired Zipcar—a leading car-sharing services company. It has more than 915,000 members in the US, Canada, and Europe.

Avis operates Budget Truck—a US truck rental business with a fleet of ~22,000 vehicles. In July 2013, Avis acquired Payless.

Avis gets recognition for service excellence

The 2014 World Travel Awards recognized Avis as the world’s leading car rental company and the world’s leading luxury car rental company. The company’s website, Avis.com, was recognized as the world’s leading car rental company website.

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2015 outlook

Its North America revenue is expected to increase by 6% to 8% in 2015. Avis is expected to face headwinds from changes in currency exchange rates. The effect of currency movements is expected to be 5 points of revenue growth.

The company’s upper level EBITDA (earnings before interest, tax, depreciation, and amortization) guidance is $1 billion. Double-digit growth for Budget in Europe and the acquisition of the licensee for Scandinavian Avis and Budget will mainly drive international revenue. The licensee is expected to generate ~$100 million in revenue. Diluted EPS (earnings per share) is expected to grow by 6%–27% to $3.15–$3.75. The free cash flow is expected to be $450–$525 million.

Expansion of Payless and Zipcar 

During 2014, Avis Budget Group added 60 new locations to its Payless brand in North America. It partnered the Payless brand to its existing partnerships—including Southwest Airlines (LUV).

The result was a 15% year-over-year, or YoY, increase in Payless’ revenue in 4Q14 alone. The company is planning to expand Payless in 25 more North American locations in 2015.

Avis expanded Zipcar to 44 more colleges and universities. It launched Zipcar in Paris and Madrid. In 2015, Zipcar will be launched in the Australia and European markets.

You can gain exposure to Avis Budget Group by investing in the iShares Russell 1000 Growth ETF (IWF). Avis Budget Group accounts for 0.06% of IWF.

In contrast, Southwest Airlines has a 1.61% exposure in the Industrial Select Sector SPDR Fund (XLI). XLI tracks the performance of 66 publicly listed companies in the industrial sector.

Stock returns

Avis Budget Group’s share price increased by almost 16% in 4Q14. Hertz Global Holdings’ (HTZ) share prices increased by 15% in the same period.

In the next part of this series, we’ll discuss Viking Global’s increased position in Delta Air Lines.

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