Northgate driven by Spain venture

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Northgate, the van rental company, said yesterday it had another strong year of double-digit earnings growth, thanks to its flexible business model and growing presence in the UK and Europe.

Pre-tax profits for the year were up 24 per cent to £55.6m, with turnover up 29 per cent to £458m after its fleet increased 14 per cent to 71,600.

Whereas most van rental companies operate fixed-rate contracts for a fixed number of vehicles over a fixed length of time, Northgate has won customers with the promise of flexibility. If a customer finds that times have got tough and they no longer need 25 vans, they can return as many as they want to Northgate.

Not good for Northgate, you may think. But the company has a team of sales people who get returned vehicles rented out to other customers. If the vehicles can't be re-rented, they are sold, and if they can't be sold for a good price, the company stops buying some of the 2,000 vans a week it usually orders. This ensures 90 per cent of its fleet is rented out over the year.

Northgate has a leading position in the UK, but is planning to consolidate this further with acquisitions. Bigger scale gives it more buying power, allowing it to get better deals on vehicles.

In Spain, Northgatewholly owns its Fualsa subsidiary, and also announced yesterday the acquisition of Record Rent for £95m, significantly boosting its presence there.

At 868.5p, its shares trade at about 13 times earnings - inexpensive given the growth yet to come in the Spanish market. Buy.