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Start of notes for Alquiber Quality

Data as of 2023-09-07

Background

Ticker: ALQ
Listed in Spain in 2018
Spain has a dividend withholding tax of 19%
Alquiber runs a vehicle rental business in Spain and operates in a highly fragmented market
The largest player is Arval Service Limited with US$1 billion in revenue; Alquiber has around US$100m revenue in FY22

Key information

Recent share price of €8.85
Outstanding shares of 5.5 million
Market cap of €48.6 million or US$52 million
LTM revenue of US$107 million, operating income of US$16.8 million, and net income of US$9.1 million
US$7.2 million in cash, US$39 million in near-term debt and US$40.7 million in long term debt

Business

Rental automotive business
Alquiber’s business is capital intensive, as the company needs to buy automobiles first and then earns revenue after
Had 221 staff in 2022, consisting of 51 technical staff, 100 admin staff, and 70 other services staff
Very simple business model: It earns revenue from rental services as well as the sale of used vehicles
In 2022, Alquiber’s rental income was €83 million, and the sale of old vehicles was €16 million; rental income accounted for 84% of total revenue and revenue of old vehicles was 16%

Key stats of the business

Fleet was 16,000 vehicles in 2022, up 21% from year ago
Average purchase price was up 21%
Average occupancy rate was 91%
Number of commercial offices was 23, up from 22 in 2021

2022 growth

Rental revenue increased 31%
Alquiber also started industrial vehicle rental, which contributed to growth
There was YoY rental growth in every month in 2022

Alquiber’s advantage

Strong relationships with clients with significant percent of revenue from large corporations and companies in essential sectors (such as electricity and infrastructure)
Wide network of offices across Spain which ensures proximity to the client
Wide range of vehicles that can cater to clients’ needs
Offices across the country also allow for fast response speed

Cash flow

Operating cash flow is very strong
In 2022, Alquiber had US$49 million in operating cash flow from just US$107 million in revenue
Operating cash flow minus depreciation for the year is a better gauge of the company’s real cash-flow generation because there’s a need to depreciate its vehicles, which need replacing
2022 operating cash flow minus depreciation was only US$5 million

Historical numbers (2014-2022)

Net debt has risen substantially over time as capex has exceeded depreciation and amortisation, as the rental fleet expands; the rental fleet has been growing with property, plant, and equipment on the balance sheet growing from US$25 million to US$200 million
Free cash flow has been consistently negative
Operating cash flow minus depreciation has also not been very strong
Alquiber seems focused on EBITDA, which is probably the wrong metric to use as it is a capex-heavy business
Revenue CAGR of 26% since 2014, and net income CAGR of 32%
Near-term debt has become an issue, with near-term debt more than cash on hand

Debt profile

Alquiber appears to have raised some 2-year bonds to cover its current debt for the year

Valuation

Market cap of US$52 million, and net debt of US$76 million, giving an enterprise value of US$128 million
Net profit of US$9 million, so EV/net profit of 14
But cash conversion when using operating cash flow minus depreciation has not been strong
Overall, not an interesting business with too much debt and weak cash flows

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