MIDAS SHARING TIPS: Road company Redde Northgate is driving
It is estimated that there are 2.6 million road accidents in the UK each year. Most are relatively minor. Some are life changing. Virtually everyone needs support, from roadside recovery to repair work and replacement vehicles. North Gate Network provides all of these services and more.
Its clients include insurers, leasing companies and large businesses, and it is contracted to handle accident claims for 20 million UK drivers, around half of the country’s motorists.
The group also owns more than 130,000 vans and corporate cars here and in Spain, making it one of the largest operators in the sector, with clients ranging from Tesco to local contractors and delivery drivers.
The company was formed in February 2020, when accident services company Redde merged with van leasing specialist Northgate. The idea behind the deal was to create a company that could make life easier (and cheaper) for anyone involved in driving, leasing or insuring cars and trucks.
This is what he has demonstrated. The company has gained customers, generated growing profits and paid generous dividends to shareholders. However, Redde Northgate shares have lost a quarter of their value this year, trading at just £3.17. The decline is undeserved and should be reversed, as chief executive Martin Ward proves his worth.
Support System: Redde Northgate provides services such as roadside recovery and temporary vehicles.
Before the merger, Northgate had a spotty track record, criticized for pursuing growth over profits and relying too heavily on certain sectors, such as construction. Ward came from Redde, a smaller company but one that seemed better able to withstand economic ups and downs. While many alliances fail, this one has delivered everything it promised and more.
Both businesses had fleets of vehicles. The combination meant they had more to offer and could attract larger clients. The merger also led to a significant increase in car and truck depots and body shops for repairs. That means replacement vehicles can be provided more quickly and accidents can be sorted out more quickly, increasing the group’s appeal to both insurers and fleet owners. Scale also allows Redde Northgate to offer better rental and repair deals than smaller operators, a feature that is particularly attractive in the current inflationary environment.
The combined size has also given Ward access to more vehicles, which is useful at a time when production of new cars and vans remains limited, particularly in the UK. Driven by these advantages, Redde Northgate reduced costs, increased profit margins, added new customers, and offered more services to existing customers.
The company has also expanded its fleet and made some shrewd acquisitions, such as Fridge Express, which provides temperature-controlled vans to food and pharmaceutical companies, and ChargedEV, which provides electric vehicle charging points for homes and businesses.
The group also helps remove vehicles after accidents on motorways and is contracted by the police and National Highways to get to the scene and clear the roads quickly and safely.
The range of businesses and activities testify to Ward’s determination to make Redde Northgate a diverse and resilient company, capable of developing and growing even in difficult economic climates.
Recent results bode well, with sales up 22 per cent to £1.5 billion, profits up 10 per cent to £166 million and a 14 per cent rise in the dividend to 24p in the year to April 30, 2023. A trading statement last month was upbeat, with Ward feeling confident thanks to growing momentum across the group and a rich pipeline of new business.
Brokers are also optimistic, although they believe gains could remain static for a while.
Redde Northgate sells vans when leases are up for renewal. The shortage of new vehicles has artificially inflated prices and this source of income is expected to decline as supply returns to normal. But the group’s annual sales are forecast to exceed £1.8bn by 2026, and the dividend will rise to 25p next year and rise steadily thereafter.
Ward is also ambitious and hopes to reach a turnover of £5bn in the next five years, as the company grows here and in Spain. More acquisitions are planned as Ward and chief financial officer Philip Vincent look to make Redde Northgate a one-stop shop for businesses and insurance firms.
Midas Verdict: Ward and Vincent spent £260,000 of their own money buying shares last month. Your decision makes sense. At £3.17, Redde Northgate shares are trading more like a troubled stock than a company in growth mode. This is undeserved and should change as Ward moves the company forward and investors gain confidence in his ability to deliver. Meanwhile, Redde Northgate offers a dividend yield of over 7 percent. Time to buy.
Traded in: Main market Heart: REDD Contact: reddenorthgate.com or 01325 467558