By Paul J. Davies
If the future of car ownership lies in the sharing economy, Société Générale /zigman2/quotes/204500712/delayed SCGLY +0.09% is moving into pole position and is about to make a lot more noise about it.
The French bank has been quietly building a big and profitable car-leasing business, which is increasingly targeting consumers directly as well as companies. Now it intends to publicly list a stake in the unit, called ALD, jumping onto the trend of so-called mobility services.
Self-driving cars and shared ownership have the potential to change the car industry dramatically . Some analysts believe this ultimately will lead to a string of listed fleet-ownership companies like ALD, spun out of manufacturers or new entrants such as Alphabet, the parent of Google.
Société Générale didn’t give a potential valuation or full-year profit numbers for ALD at its 2016 results on Thursday when it announced the move, which is meant to give ALD a more public profile.
However, previous reports give an idea of ALD’s size and performance and thus its value. It has about 1.4 million vehicles putting it second only to Volkswagen’s leasing arm in Europe. It produced net income of €208 million ($222.13 million) in the first half of 2016 for an annualized return on equity of 34%—better than any other Société Générale division. It has about €1.2 billion of equity behind it, less than 3% of Société Générale’s total, but it produced 8.5% of the group’s first-half profit.
To list separately, ALD will have to add some of its own functions, for example investor relations staff, and take on costs currently assigned to Société Générale’s corporate center. To be conservative, if that cut 10% of profit, and profit grew 20%, then net income for 2017 would be around €450 million.
Société Générale itself trades at almost 10-times forward earnings, so putting ALD on a relatively conservative 12-times earnings, it would be worth €5.5 billion or more, more than 15% of Société Générale’s current market value.
For comparison, U.K. equipment leasing company Ashtead /zigman2/quotes/200232063/delayed UK:AHT +0.81% , which runs Sunbelt in the U.S., trades at more than 15-times forward earnings, while Hertz Global trades at more than 26-times.
Société Générale will keep a majority stake and will continue providing a lot of ALD’s funding. The main reason for the listing is to give ALD the independence to pursue partnerships with car manufacturers or technology companies.
There is room for skepticism about how far and fast the whole “mobility services” industry might grow. But so long as it is on trend, Société Générale would get good value for ALD, and as its major owner see a boost to its own stock as well.
Write to Paul J. Davies at email@example.com