- Trading above expectations across the board
- Earnings seen top of the range of estimates
- Shares still look cheap, upgrades to follow
It was pedal to the metal for shareholders in vehicle hire and mobility services group Redde Northgate (REDD) after it issued an unscheduled trading update for the year to the end of April.
The shares raced to the top of the FTSE 250 leader board, gaining 28p or 7.7% to 392p on news earnings would beat market estimates thanks to better-than-expected trading year-to-date.
WHY HAVE THE SHARES JUMPED?
The group, which provides ‘whole lifecycle’ services to car and van rental customers, from repair and maintenance to insurance, legal services and even advising on the EV (electric vehicle) transition, revealed trading was ahead of expectations due to ‘strong and resilient demand from customers for services across both vehicle rental and accident management, including growth from major insurance contracts launched over the past 12 months’.
The tight supply of LCVs (light commercial vehicles), which held the UK and Irish business back to a degree last year, has eased this year, while in Spain car and van supply is ‘already close to normal’ according to the firm.
Meanwhile, traffic volumes and incidents are also near normal levels, meaning plenty of business for its accident management and vehicle repair operations, and resale values are strong in both markets meaning higher profits on disposals.
As a result of all these factors, the group now sees pre-tax profit for the year to April around the top end of market estimates meaning around £165 million against the consensus figure of £155 million.
Chief executive Martin Ward suggested there was more fuel in the tank as the group continues to sign up more large customers on multi-year service contracts.
‘As we look forward, the group is performing at record levels, there is more interest in our platform than ever before, and we have a strong base from which to make strategic progress in the coming year.’
GREEN LIGHT FOR UPGRADES
Shares tipped Redde Northgate at 346p earlier this month based on strong trading in the first half to October and its low valuation at just 6.6 times full-year consensus earnings estimates at the time.
Before today’s update analysts at Numis had a 500p price target on the stock while Barclays had a 556p target, so we would expect both firms to crank up their valuations along with their April 2024 and April 2025 earnings forecasts.
