Tuesday, June 25, 2013

Northgate's 2013 Results

Northgate  reported its FY 2013 results todays The company incurred a £54 million charge in order to reduce its interest expense from 7.1% to 2.8% . The lower interest charge translates into $20 million in additional annual after-tax cash flows to equity.

Here’s its free cash flow history:





Here’s what its valuation looks like:



Corrected:  July 9th

This is how I arrive at 700p:

Disclosure: I am long Northgate

11 comments:

  1. I believe the number of vehicles was 85,000, as shown from the report today:

    Closing fleet of 49,900 in the UK (2012 - 52,900) and 35,100 in Spain (2012 - 38,400);

    ReplyDelete
    Replies
    1. Indeed. I was wrongly using the vehicles on hire figure from the Chairman's statement. Thanks.

      Delete
  2. Red,
    I'm confused about your 147mm FCF number. You are taking cash flow of 92.6mm per pg 25 of the results presentation (http://bit.ly/185n2sz) and then adding back 54mm pounds of refinancing expense. But it looks to me like that the 92.6mm already excludes the 54mm as it starts with statutory operating profit before exceptional items (see pg. 24 of results announcement http://bit.ly/1amdqOo). But maybe I am missing something.

    Thanks,
    Gordon

    ReplyDelete
    Replies
    1. Hi Gordon,

      I see that now: Note 4. Thanks for pointing it out.

      Delete
  3. Hi Red,

    Why did you not use £378m of net debt when calculating EV?

    Also, with EV calculated, how did you then arrive at a valuation of c. 700p per share?

    ReplyDelete
    Replies
    1. Hi,

      I treat operating leases as a debt-like obligation and capitalize annual operating lease expense at 7x in order to arrive at a fair value of the liability.

      I've amended the post to include the way in which I arrive at 700p

      Delete
    2. Thanks Red, I'm going to try and use this to do my own valuation (though I'll probably end up anchoring now!)

      Delete
    3. Why did you choose a yield of 8.5%?

      Delete
    4. Yield of 8.5% (i.e. PER of 11.75x) seems reasonable to me because 10% is an okay return on one's investment and the extra 1.5% accounts for what I think is a low estimate of its (secular) growth potential in unaddressed geographies.

      Delete
    5. Unaddressed geographies in the UK or Europe, out of interest? I assumed the company would focus on stabilizing its current business before venturing further afield...

      Delete
    6. In the UK: they say that there are communities in the UK where there is notional demand for van rentals. London, though not a typical example, is one such.

      Delete