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NTG (LSE)

Northgate PLC is a provider of flexible fleet rental, mainly commercial vehicles (vans) and mostly to businesses (UK and Spain). The company emerges from a difficult 2008/2009 period when it was forced to raise new equity and then to rationalize its operations. 

Comparing Apr-2012 /Apr-2008:
  • the fleet size decreased by 44% (91,300 vehicles vs.131,350);
  • rent revenues decreased by 15% (₤504m from ₤578m);
  • vehicle disposal revenues increased by 3.4% (₤203m from ₤196m);
  • whilst the free cash flow increased to ₤136m from negative ₤1.1m.
As of 25-Nov-2012, the shares trade on the London Stock Exchange, symbol NTG for approximately ₤2.6 each. The multiples are:

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 EV*/EBITDA**           EV/FCF          EBIT/EV               P/E     

                                     x2.65                        x5.7               12.2%                 x8.8

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    * Net debt amounting to ₤418.5m (₤385.3 excluding operating leases) and diluted shares as of April 2012 (136.31 million) have been considered for the calculation of market capitalization and EV. 
** EBITDA (EBIT + Depreciation + Amortization), EBIT (operating profit after exceptional expenses), FCF (operating cash flow, after vehicle sales and purchases less other investments) are calculated based on April 2012 results.
 
 
Northgate, as the largest independent player in UK and in Spain, could make an attractive acquisition target due to this reason but also due to its ability to generate profits and significant operating cashflows. As a general trend the industry is consolidating and it witnessed a wave of acquisitions during 2011. Soon enough (with debt going down) the free cash flow generated by Northgate might entice the private equity, too. 

Also (with debt going down) at least the current difference between the enterprise value of ₤773m and the market capitalization of approximately ₤350m shall be recaptured by the share price which could (maybe in 3 years) orbit the ₤5.5 range. In the meantime the company may reinstate the tradition of paying sensible dividends. The first dividend since 2008 was declared in June this year ₤0.03/share.

The company faces various risks related to matters such as competition, residual values, health of the economy or exchange rates and risks which are more company specific such as the debt load or the covenants (among others). The rationality proven by this management team since they took the helm in 2009 (fiscal 2010) provides some comfort with regard to their ability to handle the risks, increase the profitability and produce lively operating cash flows. 

The revenue growth appears to be an unfulfilled priority on the management's agenda. The company has increased the vehicle rental prices in UK for the last two years in a row until they seem to have reached a plateau in 2012 while in Spain price increases did not hold steady and had to be lowered by 2%. Organic growth hopes in the UK have brought about the strengthening of the sales team (+25%) and the recent recruitment of a new Sales Manager (UK), actions still to be proven as bearing fruits for the company...


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