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Northgate forecasts margin growth in current year as UK turnaround gains momentum

The vehicle rental firm said it expected its rental profit margin to grow around 50 basis points in the current year from its margin of 12.4% last year

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For the year ended 30 April, Northgate reported a 14.5% jump in pre-tax profits to £60.4mln

Northgate PLC (LON:NTG) has forecast growth in its rental profit margins for the current year as a turnaround in its UK business continued to gain momentum.

In an outlook statement included in its results for the year ended 30 April, the vehicle rental firm said it expected its rental profit margin to grow around 50 basis points in the current year from its margin of 12.4% last year, adding that rental revenues were forecast to grow by low to mid single-digits on the back of higher averages of vehicles-on-hire in the UK & Ireland and Spain.

READ: Northgate responds to Crystal Amber's move to requisition general meeting to propose removal of vehicle hire group’s chairman

In the medium-term, the company said it expected to deliver a rental profit margin of at least 15% thanks to a “substantial margin opportunity ahead” for the UK & Ireland and continued strong margins in Spain.

The upbeat outlook accompanied a solid set of results for the group’s previous year, where it reported a pre-tax profit of £60.4mln, 14.5% higher than the prior year, while total revenues jumped 6.2% to £745.5mln as a 9.9% increase in revenues from the group’s larger vehicle hire arm offset a 1.1% decline in its sales division.

As a result of the improved performance, the company hiked its final dividend to 12.1p per share from 11.6p in the prior year, taking the total dividend to 18.3p from 17.7p.

Kevin Bradshaw, chief executive of Northgate, said the company was making “good progress” in executing its rental strategy and addressing growth opportunities in its markets.

He added that the group’s self-help turnaround programme in the UK was “delivering”, with the company having applied regular price increases over the year and applied “greater commercial focus” to increase efficiency.

The results may prove a relief for the firm, which has seen its share price slide steeply in recent months after activist investor Crystal Amber, which holds a 6% stake, pressured for the resignation of non-executive chairman Andrew Page, blaming him for a period of lacklustre performance and profit warnings. Despite Amber having requisitioned a general meeting to vote of Page’s removal, the chairman resigned from the board in late-March before the vote could take place.

Peel Hunt cuts target price but stays at ‘buy’

In a note, analysts at broker Peel Hunt cut their target price for the group to 450p from 500p, however they maintained their ‘buy’ rating on the stock saying the shares remained “attractive” given they were at a 20% discount to their tangible net asset value estimates of 410p for the 2020 financial year.

The broker added that they remained “positive” on the firm given its potential for underlying improvements in return on capital employed.

In early trading on Tuesday, Northgate shares were up 0.2% at 322.5p.

Quick facts: Northgate plc

Price: 353.5 GBX

Market: LSE
Market Cap: £470.98 m

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