HTZ Details

Filed for Bankruptcy in May 2020: Hertz Global Holdings (NYSE: HTZ) is a vehicle-rental company operating throughout North America, Europe, the Caribbean, Africa, Latin America, the Middle East, Asia, Australia, and New Zealand. As on 19 October 2020, the company had a market capitalisation of ~$338.97 million. Due to the impact of the COVID-19 pandemic on travel demand, the company saw significant decline in its revenue and future bookings. As a result of the uncertainty surrounding the impact of the pandemic and to strengthen its capital structure, the company voluntarily filed for bankruptcy in the U.S. Bankruptcy Court for the District of Delaware on 22 May 2020. Its principal international operating regions including Europe, Australia and New Zealand are not included in the bankruptcy proceedings.

Announced Debtor-In-Possession Financing of $1.65 Billion: On 16 October 2020, HTZ announced that it has secured a commitment of $1.65 billion in debtor-in-possession financing, providing additional financial flexibility to navigate through COVID-19 pandemic. The company intends to use around $1 billion of the financing for vehicle acquisition in the U.S. and Canada. Around $800 million of the financing is expected to be used for working capital and general corporate purposes. HTZ had filed a motion for approval of the financing by the U.S. Bankruptcy Court. The hearing is scheduled for 29th October 2020.

Appointment of New Chief Accounting Officer: On 19 October 2020, the company announced the appointment of Alexandra Brooks as the new Senior Vice President and Chief Accounting Officer. Alexandra Brooks has over 25 years of experience in finance, accounting, and audit and previously she has held a variety of leadership roles at the General Electric Company.

Q2FY20 Results: For Q2FY20, HTZ reported total revenue of $832 million and a net loss attributable to the company of $847 million. The total U.S. Rental Car (U.S. RAC) revenues stood at $533 million, down by 70% YoY, impacted by the COVID-19 pandemic. At the end of Q2FY20, the company had total liquidity of $1.4 billion.

Q2FY20 Results (Source: Company Reports)

What to Expect: In response to COVID-19 pandemic, the company has taken steps to eliminate all non-essential spending and preserve liquidity. The disciplined adjustments to the company’s cost structure are expected to generate around $2.5 billion in annualized savings. The filing of bankruptcy is expected to further strengthen the company’s robust financial structure which will help it in navigating through COVID-19 pandemic.

Valuation Methodology: Price to Book Value Multiple Based Relative Valuation (illustrative)

Price to Book value Multiple Based Approach (Source: Refinitiv, Thomson Reuters)
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months 

Stock Recommendation: The company’s Q3 FY20 results are expected to release on 2^nd November 2020. The stock price of HTZ has corrected by 53.33% in the last six months, however, jumped 64.4% in the last one month. On a technical analysis front, the stock has a support level of ~$1.055 and a resistance level of ~$3.37. We have valued the stock using price to book value multiple based illustrative relative valuation method and arrived at a target price with a correction of high single-digit (in % terms). Considering the company’s ongoing proceeding related to bankruptcy, weak June quarter results, and uncertainty surrounding the impact of COVID-19 pandemic, we are giving an “Avoid” rating for the stock at the closing price of $2.17, down by 13.2% on 19 October 2020.

HTZ Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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