Broker snap: Buy Northgate, says Peel Hunt

6th Dec 2011 11:00

Peel Hunt has reiterated its buy rating for vehicle hire firm Northgate after the firm's first half results came in slightly ahead of forecasts.The firm's clean pre-tax profits were 2% above Peel Hunt's expectations, with UK operations (which account for 71% of earnings before interest, tax and amortisation) demonstrating "resilience", the broker said. Also, analyst Andrew Nussey notes that Spain continues to perform well in tough markets."Our estimates continue to assume that UK recovery will be gradual and that Spain remains under pressure. While Northgate is still exposed to cyclical risk, we believe the potential for positive surprises (UK performance and return on capital employed [ROCE]), long-term value creation and management quality should be reflected in a higher rating," said Nussey.Peel Hunt says that the shares are currently trading at just 0.9 times book value but should trade at a premium given the improving ROCE (12.5%).With the outlook unchanged, the target price of 350p and buy rating are left in place.Nevertheless, shares edged lower on Tuesday morning, trading down 2.89% at 235p by 10:59.BC