Changing gears at Zeda?

Zeda, a small-cap vehicle leasing and rental stock with a market capitalisation of R2.5bn, saw an intriguing board shake-up at its AGM at the end of February. The developments garnered few headlines, but that’s not surprising. Zeda has kept a low profile since being unbundled from industrial behemoth Barloworld in 2022.

Investors might have thought the group, as a relatively new standalone name on the JSE boards, would have wanted to build its own story outside the Barloworld stable and bolster its presence in the market. The recent board changes suggest Zeda’s low-key narrative might well take a new track in the months ahead.

Sharp investors would have noticed that the Zeda AGM circular included some intriguing motions. First, the meeting had to be rescheduled, as major shareholders — after the initial notice of the AGM had gone out — proposed three of their own directors: Omri Thomas, an asset manager at boutique fund manager Abax and former chief investment officer of Sanlam Investment Management; Augostino Sfeir, group director of investments at the Saudi-based Zahid Group; and Sydney Mhlarhi, founder of Tamela Capital Partners. This necessitated a new circular and additional time for shareholders to review it and consider their voting intentions for the three newly proposed directors.

For the record, Zahid holds 18.9% of Zeda (via Zahid Tractor & Heavy Machinery), while Abax Investments speaks for 20.3% of the group’s issued shares.

Now, market watchers might wonder why major shareholders would want their own directors on the board. Do they not trust the current board? Are they unhappy with the strategy? Neither of these, the FM suspects.

But first the mechanics of the board change. The expectation might have been that the major shareholders wanted their three directors to replace the incumbents — Sibani Mngomezulu, Yolanda Miya and Marna Roets — who were up for re-election. Investors have seen this kind of “aggressive” shareholder bid at Quantum Foods (see Editorial) and Trustco (at both companies, the push for board changes failed).

At Zeda, it was tellingly different. The incumbents were duly voted back onto the board with 99.9% of the votes and the three shareholder-nominated directors joined them with 94% support. So clearly there is no animosity here — though a bigger board, especially at a small-cap, might not leave the greatest impression. But looking at Zeda’s remuneration report, it would be churlish to argue Zeda will be incurring a heap of additional costs.

Questions might be raised about Thomas, a well-known fund manager, because on the face of it, his appointment must create all sorts of conflicts of interest and additional compliance requirements both for Zeda and Abax. While this does increase governance complexity at Zeda, the value add can’t be ignored because Thomas, the FM understands, has in-depth knowledge of Zeda that even predates the group’s time as a subsidiary of Barloworld.

A source close to Zeda maintains the appointment of the three new directors was not a hostile tilt but a constructive move that could unlock “significant value traps” in the group. “I think the board was very open to the changes. The new directors offer fresh insight into the Zeda boardroom … they will add value,” this person says.

We extended the lives of rental vehicles and sold them at an optimal age

—  Ramasela Ganda

Zeda appears to be a compelling proposition for value-inclined small-cap pundits. The group operates three divisions: a car rental business under the Avis and Budget brands; a leasing and fleet solutions brand; and a smaller car dealership that trades used vehicles from the other two businesses once they reach the end of their useful lives or become surplus to needs. The two main divisions, car rental and leasing, operate primarily across several Southern African countries and are among the largest operators in the region.

The most recent results, for the year ended 2025, showed strong growth with headline earnings up 15.7% despite the car rental business being under pressure and the influx of Chinese cars driving down prices in the second-hand market for cars exiting the asset pool. Discussing the second-hand market in her annual review, CEO Ramasela Ganda noted the structural changes posed by the influx of vehicles from Asian manufacturers, and said US tariffs were a problem in the value chain.

She said the shift in the new-car market had had a particularly noticeable effect on prices for used cars in the one-year-old category. “To mitigate margin dilution, we extended the lives of rental vehicles and sold them at an optimal age. Though this tactical response has led to a 14.6% decrease in used-car sales volume and a 4.1% decline in revenue, it has boosted profit margins.”

Zeda’s return on invested capital improved from 14.35% to 14.7%, and though return on equity slipped to 21.9% from 23.1%, it remained above 20%. Both of these key metrics were above management’s target for sustainable operations.

Worth noting is that Ganda indicated that the board approved an inorganic growth strategy that included expanding into “mobility-related adjacencies” and extending Zeda’s geographical footprint. She said Avis Budget Group (ABG) had already extended Zeda’s operating licences on the continent to include East, Central and West Africa. “Zeda has adequate balance sheet capacity and access to funding to support inorganic growth.”

Encouragingly, Ganda reported that the performance of Zeda’s Ghana business had improved because of strengthened contracting discipline and operational enhancements. “Consequently, the board resolved to retain the operation in Ghana. It is no longer regarded as an isolated asset but as a strategic anchor from which the group can serve the West African region under ABG’s broadened licence framework. Targeted capital allocation to this market is therefore strategically justified.”

Some investors have been wary of Zeda because of perceived high debt levels. The latest annual report reflected that average debt levels rose R446m to R6.3bn. Financial director Thobeka Ntshiza, though, explained that since Zeda’s business required a significant amount of capital, funding was tied directly to the group’s investment in operating assets. “We aim to optimise our capital structure, maintaining a ratio of about 70% debt to 30% equity.”

She stressed that maintaining a healthy financial position enabled Zeda to be prepared to “seize high-return opportunities as they emerge” as well as invest in IT and data capabilities and withstand unexpected economic downturns.

Zeda’s net debt:ebitda ratio stands at 1.5 (2024: 1.4), supported by robust interest cover of five times. Ntshiza said this remained comfortably within the financial debt covenants and demonstrated that the operating model is resilient to fluctuations in interest rates.

Capital expenditure focus areas in the new financial year will be similar to those in financial 2025 — notably fleet replacement of close to R4bn and chasing growth in new segments and Africa.

While Zeda’s share price has hardly shifted out of first gear since the company listed three years ago, the yield has found traction. Total dividends for the year came in at 181c a share, up materially from the 100c a share declared in 2024. Assuming no change in the dividend, which can be risky in a business such as Zeda that is sensitive to both consumer and business confidence, the forward yield is 13.8%.

By halving the dividend, investors would still get a nearly 7% yield based on the current share price, which is bouncing around R13. The business is trading at a historic p:e of about 3.6, which, even by JSE small-cap standards, is very low.

The market expects the interim results for the half-year ended March 2026 at about the end of May. The current valuation and dividend yield make Zeda look compelling, so another set of financial results should help determine whether the share is cheap for a reason.