Marginally Overvalued, But a Solid Dividend
Briefing
- Thesis: Zigup (formerly Redde Northgate) is expecting FY 2026 profit before tax of £154–159 million, down from the previous year's £166.9 million adjusted figure. The trading update was very light on information. Revenue has plateaued after five years of strong growth, gross margins are normalising from pandemic-era vehicle disposal profits, and leverage at 1.9x is at the top end of the target range.
- Valuation view: Using my estimated statutory earnings per share of 40.69p (after bridging from the adjusted guidance to a more realistic statutory figure) with a 3% growth rate, I arrive at a valuation of 403.64p. Against a current price of 418p, the value opportunity is −3.4%.
- Key risk: The gap between adjusted and statutory profit is significant — £65.4 million in FY 2025. Depreciation adjustments, amortisation of acquired intangibles, and exceptional items are recurring features, not genuine one-offs.
- Key catalyst: A 6.3% dividend yield is very good. The fleet has a net book value of approximately £1.5 billion, providing tangible asset backing. Steady-state cash flow target of £200 million+ by FY 2027/28.
- Overall stance: No action. Marginally overvalued on a statutory basis.
Business Model
Zigup (formerly Redde Northgate) is the leading integrated mobility solutions provider in the UK, Ireland, and Spain. The company offers vehicle rental, fleet management, accident management, vehicle repairs, and service and maintenance across the vehicle lifecycle. It is a FTSE 250 constituent.
The business operates through two main divisions: Rental (commercial vehicle rental and fleet management in the UK, Ireland, and Spain) and Claims & Services (accident management, vehicle repairs, and legal services). Revenue is driven by the number of vehicles on hire, utilisation rates, and the profitability of vehicle disposals when fleet vehicles are sold at the end of their useful life.
Bridging from Adjusted to Statutory
Taking the midpoint of the guidance at £157 million, the company's adjusted earnings per share would be approximately 51.7p. But the gap between adjusted and statutory profit is significant, and I need to bridge down to a more realistic statutory figure.
Adjusted to statutory bridge
| Item | FY 2025 Actual | My FY 2026 Estimate |
|---|---|---|
| Underlying profit before tax (midpoint) | £166.9m | £157.0m |
| Depreciation adjustment | (£26.5m) | (£18.5m) |
| Amortisation of acquired intangibles | (£18.3m) | £0 |
| Exceptional items | (£20.6m) | (£15.0m) |
| My estimated statutory profit before tax | £126.0m | £123.5m |
My earnings estimate
| Metric | Figure |
|---|---|
| Underlying profit before tax (midpoint) | £157.0m |
| My adjustments | (£33.5m) |
| My estimated statutory profit before tax | £123.5m |
| Tax (at 25%) | (£30.9m) |
| My estimated statutory profit after tax | £92.6m |
| Shares in issue | 227.56m |
| My estimated statutory earnings per share | 40.69p |
Revenue and gross margin (FY 2020–2025)
Source: Zigup annual reports. Revenue peaked at £1,833m (FY 2024) before dipping 1.1%. Gross margin has declined from a peak of 29.2% (FY 2023) to 22.0% as vehicle disposal profits normalise from pandemic-era highs.
Balance Sheet and Leverage
Balance sheet position
| Metric | FY 2025 | H1 FY 2026 |
|---|---|---|
| Net debt | £836m | £939m |
| Leverage | 1.8x | 1.9x |
| Target leverage range | 1.0–2.0x | |
| Fixed-rate debt | c.83% | |
| Average borrowing cost | — | c.3.2% |
| Facility headroom | — | £341m |
| Fleet net book value | — | c.£1.5bn |
Leverage at 1.9x is at the top end of the 1.0–2.0x target range. That's worth watching. The largely fixed-rate debt structure (83% at 3.2% average cost) is helpful, and facility headroom of £341 million provides liquidity comfort.
Operational Context
Operational highlights
| Metric | Figure |
|---|---|
| Vehicles on hire (closing, FY 2025) | Up 6% year-on-year |
| Fleet investment (FY 2025) | 30,000 new vehicles, £388m replacement capital expenditure |
| Average fleet age | c.28 months |
| Spain performance | Vehicles on hire +7.4% (H1); robust growth continuing |
| Claims & Services revenue | +6.1%; hit by £4.2m cyber incident |
| Disposal profits | Normalising; expected £10–15m per segment |
| Steady-state cash flow target | £200m+ by FY 2027/28 |
Valuation
I'm using my estimated statutory earnings per share of 40.69p, with a 3% growth rate — which is quite low, but the macroeconomic situation out there isn't that great. An 8x valuation multiple with no uplift or reduction gives a formula valuation of 403.64p.
VALUATION SNAPSHOT
| Metric | Figure |
|---|---|
| Current share price | 418.0p |
| Shares in issue | 227.56m |
| Market capitalisation | £951m |
| Earnings per share (my statutory estimate) | 40.69p |
| Trailing price-to-earnings ratio | 7.2x |
| Growth rate | 3% |
| Valuation multiple | 8x |
| Dividend yield | 6.3% |
| Valuation uplift / reduction | 0% |
| Formula valuation | 403.64p |
| Valued market capitalisation | £919m |
| Value opportunity | −3.4% |
| Risk factor | 20% |
| Research grade | B |
| Probability | 40% |
| Proposed action | No action |
Zigup (ZIG) — share price (last 12 months)
Source: London Stock Exchange data. Current price 418p. Gold dashed line shows my 404p valuation — marginally below the current price.
Risks and What Could Go Wrong
- Adjusted versus statutory gap persisting: The £40+ million gap between adjusted and statutory profit recurs every year. Until this narrows, the company's actual earnings power is lower than management presents.
- Leverage at top of range: At 1.9x, leverage is at the upper end of the 1.0–2.0x target. Any further deterioration in earnings or increase in fleet investment could push it above the ceiling.
- Disposal profit normalisation: Pandemic-era used vehicle price inflation is fading. As disposal profits normalise to £10–15 million per segment, a key earnings tailwind disappears.
- Gross margin compression: Gross margin has declined from 29.2% (FY 2023) to 22.0% (FY 2025). If this trend continues, operating profit will decline even if revenue stabilises.
- Revenue plateau: Revenue dipped 1.1% in FY 2025 after five years of growth. If organic growth does not return, the business is effectively ex-growth.
- Cyber risk: The £4.2 million cyber incident in Claims & Services is a reminder of operational risk in a technology-dependent business.
What Would Change My Mind
- Share price below 370p: Would widen the value opportunity to double digits and push the dividend yield above 7%, making the income case more compelling.
- Revenue returning to growth: Sustained organic revenue growth above 3% would support a higher growth rate assumption in the valuation.
- Adjusted to statutory gap narrowing below £20 million: Would signal that the recurring "adjustments" are genuinely reducing rather than being a permanent feature.
- Leverage below 1.5x: Deleveraging would reduce financial risk and signal improved cash generation from the fleet.
- Steady-state cash flow target delivered early: Achieving the £200 million+ cash flow target ahead of FY 2027/28 would validate the operational strategy.
Conclusion — No Action
On a statutory basis, the stock is marginally overvalued at −3.4%. The trading update was very light on information, and FY 2026 profit before tax is expected to be below the prior year.
Something I would say positively about the company is that even at the current share price, they're hitting a dividend yield of 6.3%, which is very good.
No Action. Value opportunity: −3.4%. Probability: 40%. Research grade: B.