Broker snap: Longer term concerns remain at Northgate

21st Mar 2011 12:13

Overall current trading at Northgate remains robust, but UBS remains concerned with longer-term problems and keeps its 'sell' rating.The light commercial vehicle hirer announced Friday that it is trading slightly ahead of expectations, and the broker expects an announcement of debt refinancing in the next couple of months."We had expected residuals to soften in the second half with more capacity coming onto the market, which has not transpired. We now forecast £14.4m residual profits in UK (from £9.6m) which drives the majority of our profit before tax upgrade from £43m to £49m, with an earnings per share forecast upgrade of 14%", says analyst Alex Hugh.However, UBS's negative stance is retained "as we believe the budget's constrictions in Spain will drive significantly lower construction activity which we expect to impact Northgate, driving further fleet contraction there," says Hugh."In the near term our 'sell' call is challenged by trading, and we remind investors our call is based on 2012/13." The target price is raised to 280p, from 250p.