Today I have a small and unknown value for you: 123Fahrschule. Most of you probably have your driver's license, but does the model of an emerging leader in the driving school industry have a future?
What does 123Fahrschule do?
Roughly speaking, 123Fahrschule digitizes theory training for driver's licenses. In the process, the company does away with traditional branches. The learner drivers can dial into the lessons from home. In addition, 123 also offers practical driving lessons, for which it employs its own driving instructors in the traditional way.
123Fahrschule operates a rollout approach. That of acquiring several smaller driving schools & consolidating them into one large company. The total driving school market in Germany is estimated at 1.9 billion euros. The in-house software application combines e-learning, booking and payment. 123 Fahrschule also trains its own driving instructors and lobbies with the "Innovative Fahrschulen" association to ensure quality in the industry.
Over 500% since January?
The company has already risen 521% this year?! No, this is deceptive at first glance. 123Fahrschule went public via a reverse IPO. This means that the company bought itself into an empty shell company and then contributed its own shares to the company via a capital increase through a contribution in kind. As a result, the share is revalued and such price increases occur without the share already being tradable on the stock exchange. In terms of the basic principle, a reverse IPO is similar to a SPAC deal, except that only the shell company is used without the owner actively looking for a takeover target.
123Driving School in figures:
Market capitalization: €28m
KUV 22e: 0.72x
P/E ratio 22e: -13.3x
Dividend yield: /
EBITDA margin 22e: -3.5%
Net margin 22e: -8.0%
Opportunities:
The driving school market in Germany is highly fragmented. Market share can be gained quickly through expansive growth policy.
The number of driving schools has been falling for years. Competition is decreasing as a result. Over 30% of driving school owners are over 60 years old. This creates opportunities for cost-effective takeovers.
Doing away with traditional branches saves high fixed costs and increases the scalability of the offering. Driver's licenses can thus be offered more cheaply.
The Covid pandemic has legitimized online instruction. The inhibition threshold for students to opt for digital offerings has fallen sharply.
Risks:
There is a severe shortage of skilled workers in the industry. As a result, personnel costs are rising sharply. In addition, the training itself is very expensive.
123Fahrschule is a microcap company. Microcaps involve a higher risk and also the trading volume is significantly lower than for large companies.
The rollout approach is very capital intensive. This means that further capital increases are not excluded, which dilutes the share capital.
My conclusion:
I have been following the stock market story of 123Fahrschule since April, but I did not invest at that time because I am very skeptical about microcaps to begin with. That's because the risk there is much higher compared to established companies. It still is at 123. Nevertheless, CEO and founder Boris Polenske convinces me with his version to consolidate the driving school market. I can also recommend the OMR podcast with him on this. There you can hear valuable insights into the company and its founder. Since 123Fahrschule is a microcap, the weighting should not be too high to reduce the risk. Furthermore, one has to keep in mind that due to the lower volume, too large orders are not necessarily fulfilled. The company is making good progress there and is now listed on several exchanges to increase liquidity.
