UK - Profits roll in from a 'lovely niche market'

Northgate, the van hire company, "has spotted and exploited a lovely niche market", says Robert Cole in The Times. It noticed businesses of all sizes were keen to outsource and to shift capital off-balance sheet. It also saw that firms of all sorts - from huge utilities to small jobbing builders - like to use vans. Northgate has made the most of this trend. Its fleet numbers have "all but doubled" in the past three years and it is confident it can bump them up by another 50% between now and April 2006. Since 1999, Northgate has also delivered double-digit percentage increases in earnings and high single-digit percentage rises in dividend payments.

This hasn't been achieved without the occasional hiccup: the pace of growth was always bound to slow as Northgate expanded, but its success has also attracted rival operators, putting downward pressure on profitability. "Arriviste" contract hire firms started cutting prices last summer, giving Northgate a difficult few months. But the firm bounced back in the autumn, thanks to "level-headed management" that focused on holding margins firm, says Philip Aldrick in The Daily Telegraph. By July, the price war was over "and customers have not stopped hiring Northgate vans since". All the signs now suggest the good trading is continuing.

They certainly do, says Andrew Leach in The Mail on Sunday. Last week Northgate reported a 19% rise in interim profits to £22.4m. The firm has also raised £15.4m in a placing to buy the remaining 60% of its Spanish joint venture, Fualsa. The full price is worth it - Fualsa has a fifth of the Spanish market, about the same as Northgate's UK market position, meaning there is "plenty of market still to go for". The shares have recovered well after falling to a low of less than 400p last year, but given all the good news, they are worth backing even now at 585p. Philip Aldrick agrees. Full-year profits forecasts have now risen from around £41m to £43m and the dividend looks set to jump 9% to 17.5p for the full year after five years of 6-7% rises. That puts the shares on 12 times forecast earnings with a prospective 3% yield. Buy.

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