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Northgate UK shows signs of recovery

The lagging domestic business is showing promising signs of a turnaround
June 25, 2019

Northgate (NTG) may have finally turned a corner. Alongside the typically strong performance in Spain – where vehicle rental profit surged by more than a third to £40m – the UK saw a comparatively gentle, but promising, 4.8 per cent rental profit growth last year. While the 7.8 per cent rental margin is still dwarfed by the 19.7 per cent enjoyed in Spain (a 4.3 percentage point improvement), management believes the UK business now has a solid platform from which to focus on margin expansion.

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With a larger market than flexible hires, the ‘minimum-term’ offering was the key driver of the 11.3 per cent increase in average vehicles on hire (VOH). Average three-year contracts afford greater revenue visibility, now accounting for almost a quarter of average VOH in the UK (versus 11 per cent at the start of the year).

The fleet optimisation policy has slowed down vehicle disposals as the group ages its fleet and seeks to improve utilisation rates. Net capital expenditure has therefore fallen by over a fifth to £244m, improving free cash flow to £20.4m (from a negative £96m).

Peel Hunt forecasts adjusted pre-tax profit of £66m and EPS of 40p in 2020, rising to £72m and 44.4p in 2021.

NORTHGATE (NTG)   
ORD PRICE:320pMARKET VALUE:£426m
TOUCH:318-320p12-MONTH HIGH:450pLOW: 300p
DIVIDEND YIELD:5.7%PE RATIO:8
NET ASSET VALUE:423p*NET DEBT:78%
Year to 30 AprTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201561483.050.114.5
201661877.646.116.0
201766772.245.717.3
201870252.732.417.7
201974560.438.618.3
% change+6+15+19+3
Ex-div:15 Aug   
Payment:27 Sep