A smaller fleet meant underlying operating profit fell 15 per cent to £47.6m. A handful of big customers switching to cheaper contract hire meant UK rentals fell by 1,400, knocking hire revenue by a tenth and profits by 8 per cent to £36.4m. Northgate hopes beefing up its sales team by half will fill some big regional gaps. It's still difficult in Spain, though, where 1,300 fewer vehicles were hired and average revenue per vehicle fell, too. Hire revenue slumped 24 per cent and profits fell by a third to £12.7m, while the return on capital of 8.5 per cent is still uncomfortably low. Still, the decline in revenue was smaller than last year, largely because Northgate is cracking down on charging for damage, while ageing the fleet will cut costs and should improve returns. Selling vans and trucks to plumbers and builders for an average profit of about €468 (£380) in Spain and £950 in the UK cut net debt by another £28m.
Given Northgate's smaller fleets, Oriel Securities has cut forecasts for full-year adjusted pre-tax profit by 7 per cent to £53m, giving adjusted EPS of 27.7p (from £59.7m and 30.7p in 2012).
|ORD PRICE:||249p||MARKET VALUE:||£331.7m|
|TOUCH:||249-250p||12-MONTH HIGH:||271p||Low: 156p|
|DIVIDEND YIELD:||1.7%||PE RATIO:||9|
|NET ASSET VALUE:||283p||NET DEBT:||91%|
|Half-year to 31 Oct||Turnover (£m)||Pre-tax profit (£m)||Earnings per share (p)||Dividend per share (p)|
Ex-div: 12 Dec
Payment: 11 Jan
Northgate's shares trade on just nine times forward earnings and at a discount to book value, yet the fleet continues to shrink and any recovery in Spain is a long way off. Hold.
Last IC view: Hold, 201p, 27 Jun 2012