September 19, 2013 5:44 pm

Northgate van rental returns to growth

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Northgate, the van rental company that became weighed down by debt during the UK’s recent recession, has reported a return to growth – prompting investors to drive its share price up by nearly 8 per cent.

On Thursday, the company said that underlying hire revenue per rented vehicle had increased by 1 per cent, compared with the average in the year to April 30, and both its UK and Spanish van fleets had increased in size for the first time in five years.

After the news, Northgate’s shares rose 33.5p to 429.5p – their highest level in four years. They have now risen by 87 per cent in 12 months.

“Probably the market is taking a view that they have reached an inflection point; now they have growth coming through in the UK and in Spain,” argued James Tetley, an analyst with N+1 Singer. With economic indicators in the UK and Europe strengthening, Northgate’s exposure to these markets is being viewed as more of a positive, he added.

In June, Bob Contreras, Northgate’s chief executive, said the group had shifted its focus to revenue growth, opening sites in south east England and seeking to win more business from small- and medium-sized enterprises in Spain. “It’s not sustainable to have continued decline,” he said at the time.

In its 2008/09 financial year, Northgate had been pushed into a £195.6m pre-tax loss, after exceptionals, as the UK recession depressed both van rental activity and vehicle resale values. Its debt rose to more than £900m while market capitalisation sank to £78m.

Northgate described the downturn’s speed and severity as a “perfect storm”. But in 2009, the group raised £108m by means of a placing and rights issue and secured revised lending facilities of £880m. In the following years, its strategy was to reduce that debt and to raise operational efficiency.

In its update on Thursday, Northgate indicated that it was now back into a growth phase. It reported that between May 1 and September 18, its UK vehicle fleet grew from 49,900 to 50,600, while its Spanish fleet increased by 1,000 to 36,100.

Back in 2008, fleet sizes had peaked at 70,700 in the UK and 64,800 in Spain – but Northgate then scaled each back, to protect vehicle-utilisation rates.

In the most recent period, the number of vehicles on hire rose by 1,600 in the UK and 1,300 in Spain. However, as the fleet sizes increased, vehicle-utilisation rates in the UK dropped to 88 per cent, from 89 per cent in the same period last year, before returning to 89 per cent in August. In Spain, the rate averaged 92 per cent, up from 90 per cent in the same period last year.

Last year, Northgate restored its dividend payment and it has since agreed a £428m refinancing, replacing its 2009 arrangements and cutting its interest costs. At its April 30 year end, net debt was down to £363m.

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