Shares in light vehicle hire and legal services firm Redde Northgate (REDD) accelerated 5% to a post-pandemic high of 383p after the company raised its full year earnings guidance on better than expected demand.
Following stronger vehicle hire revenues and sales income in the second half, the firm lifted its forecast for underlying profits before tax for the 12 months to April to ‘not less than £92 million’. That compares with a range of analyst estimates from £83 million to £88 million.
As well as a better operating performance, the firm revealed synergies from the merger of the two businesses of £14.6 million against an April 2022 target of £15 million, and costs associated with achieving the synergies of just £2.5 million or 75% less than budgeted.
Analysts at Numis were first off the line to raise their earnings estimates, and given the strong start to the current financial year the team also raised their 12-month price target from 350p to 440p in anticipation of a re-rating of the shares.
HIGHER VOLUMES AND PRICES
The firm’s core business of light van hire grew 11% over the year to April with the volume of vans on hire up 13% in the UK and 9% in Spain. Thanks to higher rates, revenues from the hire business were up an impressive 51% on the previous year.
Meanwhile, the used van market was also strong, resulting in higher selling prices and revenues from vehicle sales. Potentially, the shortage of components which is hindering vehicle production could see used vehicle prices rise even further this year.
This month the firm strengthened its offering with the acquisition of around 2,000 vehicles from a Scottish rental firm for some £25 million, which should bring ‘significant benefits from ongoing customer relationships’.
The accident and claims management business remained subdued during the second half due to low traffic volumes, but as the economy picks up and more cars and vans hit the road activity is likely to pick up again.
Chief executive Martin Ward said the firm is starting the new financial year ‘in a strong position as we face into a number of opportunities to deliver our unique integrated mobility proposition’.
Shares flagged the attractions of Redde Northgate at 245p last November. Following its promotion to the FTSE 250 last month and the strength of today's trading update we remain positive.
