MIDAS TIP UPDATE: Zigup keeps expats in the driver’s seat

Spain is the UK’s favourite tourist destination. Nearly 300,000 Britons have moved there permanently and thousands more are moving back and forth.

These second owners will spend between a couple of weeks and a few months in their sunny piece of paradise.

Some choose to have a permanent car on site, while others prefer more flexibility. Zigup, based in Darlington offers just what these traveling travelers need: long-term car rentals at very affordable prices.

As holiday homes become increasingly popular, the business is in the right place at the right time and demand is growing rapidly.

Zigup was known as Redde Northgate before a name change earlier this year. While the rebranding may not be to everyone’s taste, there are no complaints about the business itself.

As one of the leading players in the UK rental market, Zigup rents out vans and cars to businesses, from large firms to one-man operations.

It also has a thriving division in Spain and has been offering cars directly to consumers for the past three years as chief executive Martin Ward seeks new avenues for growth and profit. His search is paying off.

Sales rose 14 percent to £1.5 billion in the year to April 30. Profits rose almost 9 percent to £181 million and the dividend rose 7.5 percent to 25.8 pence.

With Zigup shares at £3.90, the stock offers an attractive yield of over 6.5 per cent, with plenty of room for more to come.

Traditionally, companies owned their own fleet of cars or vans. Today, leasing is becoming increasingly popular.

Initial costs are lower and Zigup offers a range of additional benefits, from services and maintenance to replacement vehicles in the event of an accident. Demand is growing here and in Spain and the outlook is promising.

Zigup also has a thriving insurance business: it helps motorists after an accident: it collects unroadworthy cars, repairs them and provides new ones while damaged engines are off the road.

Its clients include Admiral, Saga and Tesco; the division grew by almost 20 per cent last year and provides accident assistance to 20 million drivers – around half of the UK driving market.

This figure is expected to increase over the next three years as the group gains new insurance clients.

Brokers expect continued growth in sales and underlying profits, with the dividend expected to rise to 27p this financial year and further to 28p by 2026.

MIDAS VERDICT: Midas recommended Zigup last October, since then the shares are up 26 percent.

Performance has been solid, but the stock is cheap compared to peers, the dividend is attractive and there should be more on offer. Existing shareholders should stick with the company. New investors could also choose to buy some shares at £3.90 per share.