Northgate PLC (LSE:NTG, Financial) is a U.K.-based "vehicle hire" or auto rental agency. The company is very profitable, and the stock is pretty cheap, trading at a price-earnings (P/E) ratio of 12 with a 3% dividend.
The stock trades for 5.565 Â pounds ($6.94) in London, there are 131.7 million shares, and the market cap is 733 million pounds. It takes $1.25 to buy one pound. Trailing earnings per share are 46 pence, and the stock trades at a P/E ratio of 12. Cheap! The dividend is 17 pence, and the stock yields 3%. Again, cheap.
The trailing 12-month revenues are 622 million pounds. Sales have been pretty flat over the last several years. Return on equity was a little over 13% last year. Operating margins are usually in the 13% to 15% range. The price-sales (P/S) ratio is 1.2.
As a rental car agency, free cash flow is pretty high and fairly stable. It was 69 million pounds in 2016, 3 million pounds in 2015, 25 million pounds in 2014 and 92 million pounds in 2013.
The balance sheet is a little high on debt, but the ample free cash flow can handle it. The asset side of the balance sheet shows 43 million pounds in cash and 68 million pounds in receivables. The liability side shows 61 million pounds in payables and 763 million pounds in debt.
The main markets are the U.K., Ireland and Spain. The U.K. business has 55,000 vehicles in 77 locations. The vast majority of its vehicles are commercial trucks and vans. The Spanish business has 40,000 vehicles in 24 locations, but it has 40% cars.
The stock is a holding of FPA International. I noticed it while looking at the fund's SEC filings. I see mainly large, institutional shareholders in last year's Annual Report.
The company named Kevin Bradshaw as its new CEO just a few months ago. Bradshaw came from Avis (CAR, Financial). Northgate releases annual numbers next month. I noticed that it was recommended in Barron's a few years ago in the annual Roundtable.
It looks like Brexit killed the stock. Another issue is that sales dropped from 2015 to 2016. It went from 6.45 pounds to 3.22 pounds. The stock recovered and then crashed again last June. Ten years ago, it was 24 pounds per share. It took a nose dive during the crash of '08 and '09. It became a penny stock or pence stock, I guess I should say. This makes sense. It looks like many of its customers would be smaller handymen and companies making deliveries. From the company web site, many of the pictures are of small vans and box trucks. You know how these did after the construction bust 10 years ago.
I'd say the same thing could happen to Northgate again. If the real estate market or economy slows down, so will Northgate. If it stays strong, you've got a stock, trading at a P/E of 12 with a dividend yield of 3%. Show me stocks priced like that!
It's a good stock to follow. It's cyclical. It's a way to play construction without being in construction. Don't sell or use shovels; rent them. The margins are higher.
Disclosure:Â We do not own shares.
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