AutoWallis Lays out ‘Ambitious’ Plans up to 2024

Although it is of great importance to Hungary, it is not always easy today to be a market player on the automotive market. The industry has had its fair share of bad news that tarnished its reputation, manufacturers have been presented with strict regulations and the future is quite blurred, to put it mildly.  

Not all players are hit equally, though. With large volumes of illiquid assets, and also under the obligation of creating more sustainable cars, manufacturers are bearing the brunt of the changes.  

Next in the value-chain are service providers. Here, there is less concentrated capital, which makes these companies more flexible and able to adapt to changes, Gábor Ormossy, CEO of AutoWallis told his audience at a conference last month.  

The CEO touched on how the structure of the industry will change, including the impact of technological innovations on consumer behavior and car ownership; issues constantly discussed by the industry. He also talked about how AutoWallis, whose shares were listed on the Budapest Stock Exchange in February, and whose long-term strategy has now been aired, is planning to tackle these challenges.  

The keyword here is diversification. Having recognized how the emphasis from sales and ownership is shifting towards services, the company is planning to strengthen these pillars in the future.

Nevertheless, facilities such auto repair shops and bricks and mortar car saloons will still be needed to service physical infrastructure, Ormossy noted. Therefore, it counts on the continued need for service shops and dealerships, regardless of whether electric, petrol or diesel power trains will be dominant in the vehicle use habits of the future.

Of its four companies, three – Wallis Automotive Europe (WAE), Wallis Motor Duna (WMD) and Wallis Motor Pest (WMP) – actually deal with sales of cars and car parts. They are also the ones that contribute most to the group revenues.  

Most Robust

WAE is the most robust: it accounted for more than half (57%) of the group’s overall results last year. With three outlets in Budapest, WMP and WMD were responsible for 41% of group turnover last year: the dealerships sell mostly BMW and Mini models, and many of their customers come from abroad.

Wallis Autókölcsönző Kft., a franchise partner of international chain SIXT, added 3% to the collective turnover in 2017. Half of its traffic comes from Budapest Ferenc Liszt International Airport, according to an analysis by KBC Equitas.

So what about the future? By 2024, the group counts on more than doubling its HUF 65.5 billion revenue from last year without the effect of acquisitions, hoping to achieve HUF 142 bln, primarily via organic growth. It means to rely on the development of the existing branches, increasing their efficiency, as well as the real estate development and integration necessary for expansion.

When it factors in acquisitions it plans a nearly threefold increase to HUF 187 bln.

In addition, it counts on the contribution in kind of the Wallis Group’s automotive investments (Wallis Kerepesi, Autolicit.hu, JóAutók.hu, DriveNow) into AutoWallis. Acquisitions are also on the table: the group will primarily target premium and multiple-brand domestic and regional dealerships in Central and Eastern Europe and in the Balkan region, vehicle parts and accessories dealers, fleet management and/or financing firms, as well as innovative service providers.

All this could increase the earnings before interest, tax, depreciation and amortization even more: EBITDA could nearly be quadrupled to HUF 7.9 bln due to the organic growth, while it could present a 4.5-fold increase to HUF 9.5 bln, with acquisitions.

These ambitious goals must be financed, of course. AutoWallis says it is planning to reinvest part of the earnings resulting from its operations, but also to issue bonds and raise share capital (in which it counts on the participation of institutional investors), and possibly a public offering. The acquisitions could take place via contribution in kind by a closed capital increase, or even the repayment of the dividend received by the main owner of AutoWallis, Wallis Asset Management, in the form of a capital increase, the company says.

Norbert Cinkotai

The Analyst’s Assessment

“It is positive that AutoWallis sees the future as a more integrated automotive service provider offering a fairly wide range of services from car rental to ridesharing,” Norbert Cinkotai, head of research and content at KBC Securities told the Budapest Business Journal.
That the future plans laid out by the company are not too detailed is not a problem according to the expert. “There are so many changes taking place in the industry that devising a strategy that goes much into details may not be useful,” he explains.
The goals defined are certainly ambitious, according to the analyst. They are not unattainable, but there have been a few examples of companies entering the stock exchanges and setting some nice goals they never achieved, Cinkotai says. 
“With its history and its strong basis, AutoWallis is better placed in this sense, and a more ambitious company is better at attracting capital. Whether it is able to meet the goals we will only see when reports are starting to come,” Cinkotai adds.