Broker snap: Nationwide Accident puts pedal to the metal

22nd Sep 2010 08:01

Interim results from car repairs outfit Nationwide Accident are expected to prompt house broker Arbuthnot to upgrade its earnings forecasts for this year and next.The profit before tax (PBT) forecast for the current year has been raised from £5.3m to £5.8m, while next year's projection is increased to £6.6m from £6m.The increases primarily reflect gross margin improvement.Earnings per share (EPS) numbers are also ramped up, from 8.7p to 9.6p in the current year and from 9.8p to 10.9p in fiscal 2011. Revenue estimates remain unchanged at £180.2m and £190.3m, respectively. The broker also expects the company to be more generous on the dividend front, and has pencilled in full year payments for this year and next of 5.3p, compared to its previous forecast of 5p, which results in a year-end net cash forecast of around £8.1m for the current year."The historic, and ongoing, focus on cost efficiency gives us confidence that margin will be effectively managed to produce significant growth in earnings, with underlying strong cash generation allowing the company to return cash to shareholders through a progressive dividend policy, while still providing the capital to make suitable acquisitions," the broker said.The broker said it was "highly encouraged" that the group's new initiative to gain market share in the "under-penetrated fleet and retail markets (worth a combined £1.4bn last year)" appears to be off to a good start, with fleet sales growing 7% year on year in the first half of 2010 to £7.9m."Significantly, the core insurance business also made good progress, with a number of new insurance contracts signed in the period, including the 3-year £8m per annum contract signed with Groupama in April," Arbuthnot investment analyst Adam Lawson said.Trading on a forward price/earnings ratio of 9.4 and yielding about 6%, the broker rates the shares as a "strong buy" and has a target price of 140p for the stock.