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Few Signs of Life at Northgate

Northgate's van hire business remained subdued in the 5 months to 17 March, as economic conditions continued to depress demand in its core UK and Spanish markets.

Morningstar 17 March, 2010 | 8:51AM
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With little sign of a pick-up in revenues, the group has focused on hire rate improvement, efficient fleet management, further cost reductions and cash generation. Here it has made some progress, generating a 5% improvement in utilisation rates following a reduction in fleet size and an increase in second hand sales.

Since the end of October, the group’s fleet in the UK has decreased by 1,000 vehicles to 60,000. The number of vehicles on hire dropped by 500, but the group attributed this to normal seasonal patterns. As a result, the group hire rate per vehicle has improved by 3%.

In Spain, utilisation rates are lower, but improving more quickly. Northgate has reduced its fleet from 55,200 at the end of October to 49,700. Revenue per rented vehicle has remained the same. The group has reduced its bad debt charge to €2.8m from €5.8m in the first half of the year as there has been a small improvement in the number of bad debts.

The group is working to reduce the debt pile that has made it so unpopular with the market. It is forecasting a reduction in net debt from £706m at the end of October to below £650m at the end of April. This would represent a reduction of £236m over 12 months, helped by the group’s £108m equity raising in the summer. To put that in context, Northgate currently has a market capitalisation of £258m.

The interim results are expected to be in line with expectations, but the group says the outlook for the UK is ‘uncertain’ and for Spain is ‘very difficult’.

The shares rose 0.5% to 195.3p on the statement. In early 2007, they sat at 2,500p, but that was before the group record its highest ever loss and was forced to renegotiate its debt. The picture now is improving, but it is a slow road back to recovery and investors are likely to want to see some signs that revenues are improving before re-investing.


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