Avis in Europe not doing as well

Avis Europe sinks as drops margin growth goal
LONDON (Reuters) - Car rental firm Avis Europe said on Tuesday it would not meet its target to improve profit margins, hitting its shares and overshadowing its first rise in underlying profit for five years.

The firm, 60 percent-owned by Belgian car distributor D'Ieteren , said the Internet had revolutionised its market-place and put much greater pressure on pricing than it had expected when it announced its margin target in 2005.


"A real structural change...has occurred in this market-place," Chief Executive Murray Hennessy said.

Avis Europe had said in 2005 that it expected to increase operating margins by between 3 percent and 5 percent over a period of three to four years. But, hit by slowing prices and a big bill to restructure the business, margins have fallen from 9 percent in 2004 to 7.9 percent last year.

At 10:42 a.m., Avis Europe shares were down 14 percent at 73.49 pence, off a low of 72 pence and valuing the business at about 675 million pounds.

JP Morgan analyst James Solomon was not surprised by the retreat from the margin target, saying a fall in prices in 2005 and 2006 meant it was going to be very difficult to achieve.

He was encouraged by the firm's return to profit growth and its reiteration that it expects pricing to be broadly flat this year, and kept an "overweight" rating on the shares, with a price target of 86 pence.

Avis Europe, which operates under the Budget brand as well as its own name, said profit before tax and one-off items rose 3 percent to 38.9 million euros (26.2 million pounds) last year, on a 4.8 percent increase in revenues to 1.34 billion euros.

The firm has been cutting costs and focussing on its most profitable clients in a bid to cope with cut-price competition, and said it would continue with this strategy.

"We're still aiming to move margins forward," Hennessy said in a telephone interview. "We're just not putting a target there."

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Last updated: 28-Feb-07 11:59 GMT

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