In its recent third-quarter results for 2024, FleetPartners Group Limited (ASX:FPR) presented a mixed picture of its operational performance, highlighting both challenges and opportunities within its business segments. The report showed a notable decline in the new vehicle order pipeline, an increase in End of Lease (EOL) income, and substantial growth in new business from novated leasing.
Decline in order pipeline
One of the key takeaways from the presentation was the significant drop in the order pipeline across various segments. The order pipeline, which refers to the backlog of orders yet to be fulfilled, has decreased notably from its peak levels. In Fleet Australia, the order pipeline stood at 1.9 times, a reduction from the 2.6 times recorded in September 2023. This decline was primarily attributed to the improved supply of new vehicles, which has enabled the company to fulfil more orders, thereby reducing the backlog.
Similarly, in Fleet New Zealand, the order pipeline dropped to 2.6 times, down from 3.7 times in September 2023. This reduction was largely due to a softening economy, which has dampened order activity. Although the drawdown of the pipeline has supported New Business Writings (NBW) to some extent, the overall weakening in economic conditions poses a challenge for sustaining future growth.
In the novated leasing segment, the order pipeline also saw a decrease, from 3.8 times in March 2024 to 3.3 times in June 2024. Despite this reduction, the segment continues to experience strong demand, particularly for electric vehicles (EVs), which has been a driving force behind the growth in this area.
Increase in End of Lease (EOL) income
Despite the challenges posed by a shrinking order pipeline, FleetPartners reported a significant increase in End of Lease (EOL) income. EOL income, which is generated from the sale of vehicles at the end of their lease terms, has remained elevated, contributing positively to the company’s earnings. In the third quarter of 2024, EOL income per vehicle increased slightly compared to the first half of the year, reflecting resilience in the used vehicle market.
The report highlighted that while used vehicle prices have softened from their peak in February 2022, certain vehicle segments have continued to perform strongly, bolstering EOL income. In particular, used passenger vehicle prices have remained robust, as economic uncertainties lead private buyers to opt for used vehicles over new ones. This trend is expected to sustain EOL income at elevated levels in the near term, although a gradual return to pre-pandemic pricing levels is anticipated over the longer term.
Furthermore, the increase in EOL income has been supported by a higher volume of vehicles sold as the supply chain continues to normalise. The growth in EOL income is particularly significant in the context of FleetPartners’ overall earnings, providing a cushion against other areas of softness in the business.
Growth in novated leasing
Amidst the challenges in other segments, the novated leasing business has emerged as a bright spot for FleetPartners. The company reported a 29% increase in NBW in the novated leasing segment for the third quarter of 2024, compared to the same period in the previous year. This growth has been driven by strong demand for EVs, which accounted for 59% of novated NBW during the quarter.
The ongoing shift towards EVs, spurred by government incentives such as the Electric Car Discount, has been a key driver of growth in this segment. FleetPartners noted that Tesla models, including the Model Y and Model 3, as well as the BYD Atto 3, have been particularly popular among customers. However, the company also observed a growing interest in plug-in hybrid electric vehicles (PHEVs), which are becoming more widely available.
The growth in novated leasing has also contributed to an increase in Assets Under Management or Origination Funding (AUMOF), which was 20% higher than in September 2023. This increase is expected to continue, with a shift towards balance sheet-funded NBW, which provides more predictable, annuity-like revenue streams for the company.
FleetPartners’ third-quarter results for 2024 present a nuanced picture of the company’s performance. While the decline in the order pipeline signals potential headwinds in the near term, the increase in EOL income and strong growth in novated leasing offer a counterbalance, providing resilience to the company’s overall earnings. As FleetPartners continues to navigate the evolving market conditions, these areas of focus will be critical in driving future growth and sustaining profitability.
