Signs of slow progress in Northgate’s UK division

The group began self-help measures for its domestic business last year, after concerns over its performance sent the shares down 16 per cent on results day for FY2017. The group’s primary objective is to reinforce and expand its share of the flexible and minimum-term rental markets for light commercial vehicles, and its strategy for doing so includes working to encourage minimum-term rentals as an alternative to outright ownership and consolidating the LCV resale market. The commercial vehicle market – like that of private motoring – is transitioning towards non-conventional forms of ownership and financing, though it remains in its infancy.

None of this will come easily though, and this year earnings figures for the group had declined overall, but investors looked past these to signs of progress, sending the shares up modestly ahead of the wider market on the day. Signs of progress include organic growth in the vehicles on hire, which grew 6.9 per cent in the UK, as well as the extension of bank facilities allowing for an increased dividend payment, although some might question the desirability of the return to shareholders given the group’s debt profile.

Shareholders are doubtless aware that many of the initiatives designed to bolster trading over the long haul have significantly hampered its near-term performance. Take for example the “fleet optimisation programme”, which in essence involves the group keeping vehicles in circulation longer before it sells them. This is expected to lead to a more efficient capital management, but this year vehicle disposal profit per unit was down 45 per cent and is expected to stay down in 2019, increasing thereafter – a short-term effect that needs to be seen in the broader context.

Despite this, the group’s profits and EPS came in ahead of analyst Numis’s expectations. Numis kept adjusted pre-tax profit and EPS expectations unchanged for 2019, at £62m and 38.1p, respectively (from £57m and 34.8p in 2018), but raised dividend expectations slightly to 18p from 17.7p previously.