The Beach Boys sang about getting around back in 1964, which also happened to be when Ford was thinking about trying to beat Ferrari at Le Mans. That was a different time, with gleaming chrome and no shortage of cheap fuel to power those machines. Today, Ford is battling with an expensive transition to electric vehicles (EVs) and is slowing down its investment in that space due to falling pricing and big questions around EV economics.
Times change. Markets change. Brands change. If you believe otherwise, you haven’t paid enough attention to history.
With road trip season upon us, it’s a good reminder that mobility has fascinated us as a species. Horses were a major breakthrough. Horsepower was another huge breakthrough, with Henry Ford and his peer group bringing vehicles to the mainstream. The world’s obsession with mobility and speed played out in a golden time when we discovered flight and the magic of fast trains. And of course, who can forget the Titanic and what that disaster did for Celine Dion’s career many decades later?
Today, the Passenger Rail Agency of South Africa is trying to solve the incredible conundrum of transporting people across the country by rail. It came close, with Shosholoza Meyl passengers from Joburg to Cape Town forced to complete the trip by bus after the train was left stranded because of cable theft. You can either laugh or cry when reading these stories. Both responses are acceptable.
An astonishing number of business models are focused on addressing the human need to get around, ranging from obvious choices such as automotive manufacturers to left-field ideas such as short-term insurance houses
Like the Beach Boys, people want to get around. They have no choice, even when fuel is expensive. An astonishing number of business models are focused on addressing this basic human need, ranging from obvious choices such as automotive manufacturers to left-field ideas such as short-term insurance houses.
You can go up the value chain (like component manufacturer Metair) or down the value chain into forecourt ownership (like obscure JSE-listed group Afine Investments). You can sell cars to people like WeBuyCars (part of Transaction Capital) and Motus Holdings, or you can rent out cars like Zeda and Combined Motor Holdings. You can even provide private sector solutions for transporting many people at a time, such as Frontier Transport Holdings bus services. In SA Taxi (also part of Transaction Capital), you can lose money with incredible efficiency while financing the backbone of the South African transport system.
Another way to think about mobility is the destination rather than the method of getting there. Both locally and abroad, you could consider multiple hotel groups ranging from City Lodge all the way to Hilton Worldwide and Hyatt Hotels. With cruise businesses such as Carnival Corp, the destination and the method of getting there are arguably the same thing!
You get the point by now. People have a deep desire to get from A to B, and occasionally to C. The boom in travel demand in the aftermath of the pandemic is further evidence of this. Wherever you look, travel demand is through the roof. Meta is only too happy to provide Instagram and Facebook as great places to share those travel snaps, earning advertising revenue along the way. There really is no limit to the ways to invest in mobility, directly and indirectly.
As with every investment thesis, you need to have your wits about you. The existence of demand isn’t enough to guarantee business success. There is huge demand for taxis in South Africa, yet SA Taxi has blown up spectacularly and taken the Transaction Capital share price with it. In stark contrast, Frontier is up 20% this year.
Doing your research is about understanding the value chain and where these companies fit in. You need to consider the strength of the business model and the risks it faces. Pricing power, margins and track record are all relevant.
Perhaps most of all, valuations that provide a margin of safety are worth seeking out. Even after this share price performance, Frontier is on a p:e multiple of 5.2. Zeda is even cheaper, trading on 3.4, or an earnings yield of 29%! Whether you are investing in mobility or any other sector, buying cheap is better than overpaying.
For an international example, you can look at Stellantis. I recently described this on a podcast as the polony of automotive brands, with the least appealing brands from an economic standpoint all in one place. Yet it has returned 54% this year and is still only on a p:e of 3.4.
Mobility is great. Cheap mobility is even better.
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