Northgate NTG
April 16, 2013 - 4:59pm EST by
OMC
2013 2014
Price: 3.05 EPS $0.00 $0.00
Shares Out. (in M): 133 P/E 7.5x 6.0x
Market Cap (in $M): 625 P/FCF 2.9x 4.0x
Net Debt (in $M): 422 EBIT 155 161
TEV ($): 1,097 TEV/EBIT 7.1x 6.9x

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  • Auto Rentals
  • UK based
  • Spain

Description

A.  Introduction:

Northgate (LON:NTG, FYE to 31-April) is the leading provider of rental light commercial vehicles (LCV) to businesses in the UK and Spain, operating a fleet of ~90,000 vehicles that provides commercial customers with the flexibility to lease LCVs as and when suits their business needs. In FY 2012A Northgate generated £707m of revenue (65% in the UK, 35% in Spain), EBITA of £100m and net income of £54m. 

Northgate dominates the two markets it operates in – the UK and Spain - with a UK fleet that is 16% of the total UK LCV rental market, 2.4x larger than the next largest competitor and larger than the fleets of the no. 2, no. 3 and no. 4 competitors combined. 

What’s more, over the past two years Northgate has shown improving operating efficiency, an increasingly healthy balance sheet and a management team that’s firmly focused on efficiently allocating capital.

In 2013E and 2014E, respectively, it is expected to generate £669m and £663m of revenue; £292m and £296m of EBITDA; £107m and £112m of EBITA; £67m and £76m of net income; and £139m and £100m of equity FCF. 

It is trading at 1.1x EV / 2014E revenue; 2.5x EV / 2014E EBITDA; 6.6x EV / 2014E EBITA; 6.0x 2013 P/E; and 4.0x 2013E equity FCF. 

A range of conservative valuation estimates imply 40% to 80% upside to the current share price with limited downside risk. Furthermore, though the chance of the European macroeconomic climate improving in the next 18 months is slim, this sort of scenario presents upside optionality and scope for considerable share price appreciation from current levels (~200% vs. today’s share price). 

At 4.0x 2013E equity FCF, the current share price is an attractive entry point at which to establish a position, especially considering Northgate’s potential for substantial FCF generation (even in a no-top line growth scenario the company can provide a 20%+ FCF yield to investors whilst waiting for revenue growth to rebound). Northgate is also trading at an unduly low 2.5x 2014E EBITDA and 6.6x 2014E EBITA - below its previous cyclical low multiples - even though it now has higher operating margins and a much-improved balance sheet. 

Combine Northgate’s discount to fair value with a number of potential catalysts for share price rerating over the next 18 months and you have an extremely attractive risk-adjusted investment opportunity that offers a solid margin of safety and potential to compound healthy returns over the mid- to long-term. 


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B.  Why is Northgate so cheap / why does this opportunity exist?

Northgate has had a difficult few years, massively underperforming the FTSE-250 (UK mid cap.) index since 2008. Though the company’s underlying business model was sound, organic growth and acquisitions left the business overly indebted in the lead up to the financial crisis, necessitating a £108m rights issue in 2009 and the downsizing of its fleet from ~130,000 vehicles in 2008 to ~90,000 today.  This precipitated a massive share price decline (down 90% from 2007 highs). 

The collapse in the share price tramautised many investors and analysts, with many still shunning Northgate as they (incorrectly) still see it as a geared play on the unhealthy Spanish and UK economies. As one sell-side analyst puts it, “An operationally and financially leveraged group with 40% of its assets in Spain is unlikely to feature at the top of an investor's buy list.”

Whilst the market is focused on Northgate’s legacy problems and has penalised it with an unduly cheap valuation vs. peers, Northgate and its management team have restored the company’s balance sheet health, expanded margins and implemented growth initiatives to greatly improve Northgate’s earnings potential.


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C.  Business overview:

Market leading position - Northgate is the largest provider of rental LCVs in the UK by a huge distance, with 2.4x the market share of the next largest competitor, Avis. It has the same share as the no. 2 to no. 5 operators combined.  Northgate is also the market leader in Spain, though its Spanish fleet shrunk from ~62,000 in 2008 to ~40,000 in 2012 (a decrease in line with competitors). 

Consistent position over time as the UK market leader by a sizeable margin – Since 2006 Northgate has had at minimum 16% absolute market share. Over the same period the company has never had less than 2.4x the market share of the next largest operator and 1.1x the share of the no. 2 to no. 4 operators combined.  Northgate’s remarkably consistent position over the years as the no. 1 operator – on absolute and relative terms - indicates it benefits from a degree of competitive advantage. Not only can it spread its fixed cost base over a wider number of LCVs than competitors – reducing cost per unit – but it also benefits from a better purchasing and vehicle disposal dynamic than peers (explained below).

Leaseway, previously Northgate’s biggest UK competitor, went into administration in January 2011 and its vehicles were sold off.  Similarly, TLS’s fleet (owned by GE) was sold off in 2011 and the business wound down by GE. Both defunct competitors were known for aggressively undercutting other operators on price. The removal of both from the market will be beneficial for Northgate.  

Scope for long-term fleet size growth – Only 11% of the 3.5m LCVs in operation in the UK are rented, though it has been steadily increasing. This is extremely low compared to other markets, such as the US, where ~33% of LCVs are leased. Yet – as per research from the UK government (Department for Transport) and Datamonitor - there are no major structural reasons why the UK penetration should be lower than other markets.

Rentals have been an increasingly large part of the total LCV market over the last 15 years (eg. growing to 11% from 7% in 1999). Management and industry observers expect UK rental penetration to continue to trend upwards meaningfully in the mid-term.  As the market leader, Northgate is well positioned to benefit. 

Northgate will also benefit from increasing numbers of corporate customers who previously purchased their own LCVs and, having survived the challenges of the recent financial crisis, are now looking to manage their balance sheets more effectively and rent vehicles instead of buying them directly.

Easy to understand business model with clear sources of value creation – Three main levers drive value creation at Northgate. Firstly, vehicle purchasing, where Northgate is one of the largest buyers of LCVs in the UK and Spain. Secondly, vehicle leasing and fleet management, where Northgate rents these vehicles to a wide range of corporate customers (with long contract lengths, averaging 3-4 months). Lastly, vehicle disposal. After 18 to 36 months of usage, Northgate sells the used LCVs via auction or, increasingly, directly to purchasers through its Van Monster subsidiary. 

Considerable buying power – Northgate is one of the largest purchasers of LCVs in the UK and Spain (~28,000 purchased in FY 2012). It purchases its LCVs from four main automotive manufacturers and is the largest rental customer of each. Not being tied to one manufacturer and purchasing in such large volumes allows Northgate to continually negotiate best-in-sector purchase prices, which its smaller competitors cannot match.

Improving sales channels – Northgate is building out a number of initiatives which will improve vehicle sales proceeds. Previously, Northgate and other competitors sold all their used LCVs via trade auctions, paying away a large sellers’ fee. Over the last 18 months, Northgate has been expanding Van Monster, its retail sales network (currently with eight sites in the UK and five in Spain), which is expected to lead to higher sale proceeds per vehicle than the traditional auction route. 

Furthermore, a consequence of Leaseway and TLS’ administrators liquidating their fleets was a large overhang of vehicles (16,000+) pouring into the used LCV market throughout 2H CY2011 and CY2012, depressing the prices that Northgate and others achieved from LCV sales. Primary research with LCV dealers and academics has shown that this overhang has now been worked down, with positive implications for the price Northgate will be able to achieve from its UK vehicles sales (19% of FY 2012A total revenue).

Improving operational efficiency and returns on invested capital – having overhauled its IT and ERP systems over the past 18 months, Northgate has identified a number of actionable opportunities to improve operating efficiency. 

Working capital management has continued to improve, with average days of net working capital having steadily decreased from an average of 80 in the 2005 to 2009A period to 35 in 2012A. Similarly, EBITA margins have rebounded from a low in 2009A of 9% to 15% in 2012A. This is still far below the 20% margins pre-crisis and suggests considerable scope for further margin expansion. 

Management has a laser-like focus on ROCE and has continued to improve returns since the low in 2009, improving to 13.1% in 2012A vs. 11.9% in 2011A. Management’s remuneration is driven by achieving ROCE and EPS stretch targets, ensuring that their economic interests are firmly aligned with shareholders’. 

Selectively pursuing growth opportunities – Northgate currently has ~60 sites in the UK from which it rents out vehicles. IT and ERP improvements have identified high-value areas in the more affluent parts of the UK that are ripe for penetration, with Northgate aiming to expand its site portfolio in the UK to 80 to 90 locations over the next few years. Four new sites are being trialled in 2H 2013E and could each deliver an incremental £1.5m in EBITA, meaning that 80 to 90 locations could generate a substantial increase of £30m to £40m of EBITA per annum (a meaningful amount vs. £100m group EBITA in 2012A). 


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D.  Risks, mitigants and key considerations

Spain remains a challenging operating environment – ROCE has fallen to 8.5% in Spain (prompting fleet contraction), with the business challenged to raise ROCE to 11% within the next year and managements’ incentives aligned to that goal. Management have started to improve per vehicle profitability by re-basing prices, continuing to diversify the customer base away from the construction sector, expanding the Van Monster sales channel (improving vehicle sales revenue) and driving incremental revenue opportunities. 

Whilst long-term macroeconomic conditions remain challenging and unpredictable, management look to have sound control over the business’ operational and strategic direction in the short- to mid-term. 

Fleet utilisation and fleet growth is the biggest driver of value creation – management’s focus on maximising ROCE means that Northgate has consistently targeted a 90% utilisation rate for its fleet (meaning 90% of vehicles are being rented by customers at any one time).  Even during the depths of the 2007-8 financial crisis Northgate’s utilisation rate only dropped to 83%, demonstrating the flexibility of Northgate’s business model to scale up or down as demand dictates.

Subdued customer demand since 2009 due to economic weakness has meant that management has steadily reduced the fleet size from ~130,000 in 2007/8 to ~90,000 in 2012, maintaining utilisation rates but lowering top-line revenue from £752m in 2009 to £707m in 2012A. 

Though this negative top-line impact has been partially offset at the bottom-line by operational improvements, a major upswing in long-term earnings growth will be primarily driven by fleet expansion. Positively for investors, Northgate’s business model means it’s well-equipped to quickly scale up as customer demand increases. 

The key questions that will determine value creation are (a) when will customer demand pick up, and (b) when is the optimum time to invest to capitalise on this trend. 

In the interest of prudence and in line with H1 2013E trends, we forecast no growth to fleet size or the top-line for the next few years. The rest of this investment write-up will argue that now is the ideal time to invest in Northgate and benefit from the market’s myopia around Northgate’s short-term challenges. Even with the conservative assumptions mentioned above the business’ current valuation is extremely compelling. 


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E.  Valuation

Northgate provides an attractive investment opportunity across a number of possible future scenarios (from (a) positive top-line growth and fleet expansion, should demand in Northgate’s markets improve, through to (b) the more likely continuation in the near-term of the company’s gentle decline in top-line revenue and vehicle numbers). 

Even with conservative 2013E and 2014E estimates for vehicle numbers and top-line growth, Northgate offers 40% to 80% potential upside to its current share price. Furthermore, though the chance of the macroeconomic climate in the UK or Spain improving meaningfully in the next 18 months is limited, this sort of scenario presents considerable upside optionality for share price appreciation from current levels (~200% vs. today’s share price). 

Cheap on a free cash flow basis - Northgate generates considerable free cash flow and yet only trades at a 4.0x 2013E equity FCF multiple. Not only does Northgate generate considerable FCF but it deploys it intelligently, too. 

First, Northgate has been prudently reducing its previously high leverage (from 2.8x LTM EBITDA in 2008A to 1.1x in 2013E), successfully addressing concerns about solvency and debt covenants. 

Second, as a result of management’s laser-like focus on return on capital, Northgate has been selectively investing in non-LCV capital expenditure only where it will drive long-term opex improvements. Given that the majority of Northgate’s capex spend is on new LCVs, management have demonstrated good judgement by targeting a fleet utilisation rate of 90% and only expanding the number of vehicles in Northgate’s fleet as customer demand dictates. If / when opportunities for fleet growth arise, Northgate is well positioned to scale up vehicle numbers (and the converse is true in a recessionary scenario). 

Finally, the company reinstated a dividend in 2012, reinforcing management’s strategy of only investing cash where returns will be clearly in excess of Northgate’s cost of capital, otherwise choosing to return funds to shareholders. If market conditions remain soft and management remain disciplined about fleet expansion, as expected, there will be considerable scope for further dividend increases and/or buybacks.

Northgate generated free cash flow of £293m, £132m and £189m and equity free cash flow of £246m, £79m and £139m in FY 2010A, 2011A and 2012A. This represented an equity FCF yield in those yields of 61%, 20% and 34%, respectively. Even with conservative forward assumptions, Northgate should generate 25% and 22% equity FCF in 2013E and 2014E, respectively. 

Northgate re-rating to 6-7x 2013E equity FCF - which is a more fair but still unchallenging multiple, given the company’s low-to-mid teens ROCE, mid-term growth potential and 20%+ estimated FCF yield - would lead to ~50 to 70% upside to the current share price. 

Attractive FCF generation potential, even if revenue doesn’t grow in the short-term - given the continued uncertainty surrounding the UK and Spanish economies, it’s hard to accurately forecast how Northgate’s fleet size will change over the next 18 months. What is important is that Northgate’s investors should profit in an expansionary scenario as well as one where the current depressed investment and growth profile continues. 

In the interest of prudence and in line with H1 2013E trends, we’ve forecast no growth to fleet size or the top-line for the next few years. 

Even on this conservative basis Northgate’s current valuation is extremely compelling. If demand in Northgate’s markets remain muted during CY 2013 and 2014 and, therefore, Northgate keeps its fleet size and capex at subdued levels, the company is fully capable of generating 20%+ equity FCF yield. Given management’s focus on ROCE and efficient capital allocation, there is a strong likelihood that some of this cash would be returned to shareholders. 

Trading below its previous cyclical low EBITDA / EBITA multiples - Northgate historically traded at between 3.0 and 5.0x NTM EBITDA through the last cycle (2001 to 2008), yet it’s currently trading at 2.5x 2014E EBITDA / 6.6x 2014E EBITA. 

What’s particularly striking is that Northgate’s business is in better shape than it was in in this part of the previous cycle. Improved operating efficiency, better working capital management, a much healthier balance sheet, more diversified customer base, competitors having exited the market and sound growth opportunities, etc, etc, etc… 

… which means that Northgate’s current trading multiple is even more unwarranted than an initial comparison to the previous cycle’s multiples suggests. There is considerable potential upside if Northgate re-rated to the previous cycle’s multiples (based on 2014E EBITDA of £296m and estimated net debt of £334m at FYE 2013E): if Northgate re-rates to a 3.0x EV / 2014E EBITDA multiple is 44%; 3.5x is 81%; 4.0x (previous mid-cycle multiple) is 117%; 4.5x is 154%; and 5.0x (previous top-of-cycle multiple) is 190%. 

Even after factoring in the subdued outlook for the UK and Spanish economies, a justifiable yet conservative NTM EBITDA multiple for Northgate is 3.0x to 3.5x, implying ~40 to 80% upside from the current share price. Similarly, a fair 2014E EBITA multiple would be ~9.0x, implying ~70% upside to the current share price.  

Cheap vs. comparable peers – Northgate’s publicly listed peers (Ashtead, Lavendon and Speedy Hire) have re-rated by 1.5x turns of EBITDA (multiple expansion of 39%) in the past nine months, off the back of improving Eurozone economic sentiment. Yet Northgate’s multiple has increased by only 0.3x turns (12% multiple expansion). 

The absence of fundamental reasons for this disparity is further support for a positive re-rating of Northgate’s share price; any number of catalysts over the next twelve months (discussed below) should prompt investor sentiment towards Northgate to improve and lead to a corresponding re-rating towards fair value.

Attractive on a private-owner valuation basis – LBO analysis of Northgate suggests it’s a very compelling target for a buyout - either by a strategic or a financial sponsor - with potential to deliver 27-35% IRRs for a sponsor (assuming an exit at 3.0 to 4.0x LTM EBITDA, in line with historic low- to mid-cycle multiples). 

This is based on conservative operating estimates (2% revenue CAGR to 2019; EBITDA margin of 47%; capex intensity of 24% of revenue; and acquiring Northgate at the beginning of FY2014E and exiting at FYE 2017E) and similarly conservative financing estimates (50% premium paid to current share price; 40% equity / 60% debt capital structure, which implies leverage of 1.9x EBITDA; and an interest rate at 6%). By 2018, the business will have generated enough FCF to pay down all the debt and be net cash. 

Attractive asymmetric upside/downside risk profile - One of the most attractive aspects of an investment in Northgate is that it combines a margin of safety on the downside (significant discount to intrinsic value; easy-to-understand, market-leading business model; historic and current ROIC greater than the cost of capital; and considerable FCF generation potential in a no growth scenario) with a lot of upside potential that an investor isn’t paying for. 

The impact on EBITA if the fleet expanded in the future is considerable; 100,000 vehicles is a realistic target if demand in Northgate’s markets improve and is well below the 130,000 peak achieved in 2007/8. An increase in the fleet size from the current ~87,000 to 95,000 would deliver a 10% EBITA increase; 100,000 delivers a 17% increase; 105,000 delivers a 24% increase; and returning to the previous peak fleet size of 130,000 would deliver a 59% EBITA increase. 

Though the economic climate in the UK or Spain is unlikely to improve meaningfully in the next 18 months, there is considerable upside optionality in Northgate’s current share price should customer demand improve more quickly than the market expects. 

If Northgate’s fleet grew to 100,000 LCVs, its EBITDA margin expanded to pre-crisis levels of ~50-52% and it re-rated to a 4x EBITDA multiple (in line with previous mid-cycle multiples) the company’s share price would be ~200 to 220% above today’s price. None of these assumptions is unrealistic in a more positive macroeconomic environment, especially if looking further out to FY 2014/15E.


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F.  Catalysts for share price appreciation:

Improving leverage profile - Northgate went into the financial crisis highly geared, with 2.8x net debt / LTM EBITDA. When profits in 2009 declined, a great deal of investors’ and analysts’ attention between 2009 and 2012 focused on whether Northgate would be able to stay within its debt covenants. 

Having successfully navigated this risk (Northgate now has comfortable headroom within its covenants), the company has begun to demonstrate strong FCF generation (consistently converting 150%+ of net income into equity FCF over 2008-12A). This has prompted analysts and investors’ focus to shift away from balance sheet risk to upside earnings potential, which will have positive implications for share price momentum. 

Net debt / LTM EBITDA has steadily from ~2.7x between 2006A and 2009A to 1.4x in 2012A. Even with conservative future forecasts for revenue growth, operating margins and capex intensity, Northgate's high FCF generation means that can de-lever to 1.1x in 2013E, 0.9x in 2014E and 0.5x in 2015E. 

Northgate now has a much stronger balance sheet and – as it continues to generate substantial FCF – can begin to shift focus from paying down debt towards returning funds to shareholders (eg. the company re-initiated its dividend in late CY 2012) and/orinvesting capex in fleet growth.

Reducing financing costs - interest expense, at £46m in 2012A, absorbs a meaningful 40% of EBITA. Refinancing the current debt structure could be costly in the short term (c. £15m to £20m) but would payback in less than two years by reducing annual cash interest payments by c. £12m (improving PBT considerably, by 15 to 20% per year). 

Management stated in 2012 that it is actively exploring the opportunity to simplify Northgate’s debt structure and reduce its blended interest rate (relatively high, at 7%). Any announcement of a refinancing (perhaps at FYE this April) would likely be a major boost to profits in the mid-term and a clear catalyst for share price appreciation.

Attractive takeover candidate - In October 2012, Northgate was reportedly the target of a 400p offer from Avis (a 28% premium to the then current share price) but the offer was purportedly rejected by Northgate management as being too low. Northgate has also previously been a target for numerous financial sponsors, including Terra Firma, who had a 1,200p bid rejected in 2006. 

It’s not far-fetched to envision an offer midway between the current share price of 305p and the top end of intrinsic value of 500p to 600p, which would (a) be actively considered by Northgate management, (b) create considerable value for an acquirer (even without factoring in synergies in the case of a strategic buyer), and (c) deliver considerable upside from the current price for investors

The private valuation analysis in the previous section shows that a financial sponsor could bid 520p (~70% premium to today’s price) and still expect an IRR between 28% and 33% (assuming the same conservative operating and financial estimates as noted in the previous section and the sponsor exiting at 3.0 to 4.0x LTM EBITDA, in line with historic mid-cycle multiples). 

The point of this analysis is not to suggest that a bid is likely at a specific price but to reiterate that Northgate has (a) been the target of interest for a number of potential acquirers historically and (b) its current valuation means an acquirer could justify a substantial premium to the current share price and still create significant value. The potential for a bid for the company in the next 12 to 18 months should not be discounted. 


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G.  Conclusion

Northgate is an extremely compelling investment opportunity for both the short and longer term:

Well-managed and easy-to-understand business model - supported by secular tailwinds, market-leading position and ongoing operational improvements that will drive free cash flow and earnings growth in the mid-term

Trading at considerably discount to intrinsic value – due to market misperceptions that will likely correct over the next 12 to 18 months, offering 40% to 80% potential upside from the current share price 

Clear potential catalysts for share price rerating – numerous catalysts that could prompt the rerating towards intrinsic value

Margin of safety – All of the above combines to offer an attractive asymmetric risk / reward profile, with limited downside and numerous possible drivers of meaningful earnings growth on the upside


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I do not hold a position of employment, directorship, or consultancy with the issuer.
Neither I nor others I advise hold a material investment in the issuer's securities.

Catalyst


Summary: Catalysts for share price appreciation:

(1). Major deleveraging will shift analyst / investor attention away from the possibility of breaching debt covenants (no longer an issue) towards the company's considerable FCF and earnings generation potential
(2). Interest expense is high and a refinancing of the existing debt would unlock considerable value for shareholders, with management having stated that it is actively evaluating this course of action
(3). Attractive take over candidate - Northgate has been the subject of bids from strategics and sponsors in the recent past and LBO analysis suggests major scope for value creation for a sponsor, even after paying a large price premium


Details: Catalysts for share price appreciation:

Improving leverage profile - Northgate went into the financial crisis highly geared, with 2.8x net debt / LTM EBITDA. When profits in 2009 declined, a great deal of investors’ and analysts’ attention between 2009 and 2012 focused on whether Northgate would be able to stay within its debt covenants. 

Having successfully navigated this risk (Northgate now has comfortable headroom within its covenants), the company has begun to demonstrate strong FCF generation (consistently converting 150%+ of net income into equity FCF over 2008-12A). This has prompted analysts and investors’ focus to shift away from balance sheet risk to upside earnings potential, which will have positive implications for share price momentum. 

Net debt / LTM EBITDA has steadily from ~2.7x between 2006A and 2009A to 1.4x in 2012A. Even with conservative future forecasts for revenue growth, operating margins and capex intensity, Northgate's high FCF generation means that can de-lever to 1.1x in 2013E, 0.9x in 2014E and 0.5x in 2015E. 

Northgate now has a much stronger balance sheet and – as it continues to generate substantial FCF – can begin to shift focus from paying down debt towards returning funds to shareholders (eg. the company re-initiated its dividend in late CY 2012) and/orinvesting capex in fleet growth.

Reducing financing costs - interest expense, at £46m in 2012A, absorbs a meaningful 40% of EBITA. Refinancing the current debt structure could be costly in the short term (c. £15m to £20m) but would payback in less than two years by reducing annual cash interest payments by c. £12m (improving PBT considerably, by 15 to 20% per year). 

Management stated in 2012 that it is actively exploring the opportunity to simplify Northgate’s debt structure and reduce its blended interest rate (relatively high, at 7%). Any announcement of a refinancing (perhaps at FYE this April) would likely be a major boost to profits in the mid-term and a clear catalyst for share price appreciation.

Attractive takeover candidate - In October 2012, Northgate was reportedly the target of a 400p offer from Avis (a 28% premium to the then current share price) but the offer was purportedly rejected by Northgate management as being too low. Northgate has also previously been a target for numerous financial sponsors, including Terra Firma, who had a 1,200p bid rejected in 2006. 

It’s not far-fetched to envision an offer midway between the current share price of 305p and the top end of intrinsic value of 500p to 600p, which would (a) be actively considered by Northgate management, (b) create considerable value for an acquirer (even without factoring in synergies in the case of a strategic buyer), and (c) deliver considerable upside from the current price for investors. 

The private valuation analysis in the previous section shows that a financial sponsor could bid 520p (~70% premium to today’s price) and still expect an IRR between 28% and 33% (assuming the same conservative operating and financial estimates as noted in the previous section and the sponsor exiting at 3.0 to 4.0x LTM EBITDA, in line with historic mid-cycle multiples). 

The point of this analysis is not to suggest that a bid is likely at a specific price but to reiterate that Northgate has (a) been the target of interest for a number of potential acquirers historically and (b) its current valuation means an acquirer could justify a substantial premium to the current share price and still create significant value. The potential for a bid for the company in the next 12 to 18 months should not be discounted.

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