Citi starts coverage of Northgate at buy

The 'bears' on Northgate had it all their way last year, but the company's fortunes might be set for a turnaround, analysts at Citi said as they started coverage of the firm's shares with a 'buy' recommendation and target price of 600p.

In 2015, the stock price of the light commercial vehicle hiring company was beaten down by approximately 35%, which analysts Christopher J Mcvey and Rahul Chopra put down to a decline in UK utilisation rates and changes made to how the firm accounted for depreciation.

However, that left the shares discounting "recessionary" conditions in the business, the analysts argued.

That was far too pessimistic, their proxy for gross domestic product - to which the company's top line was tightly-correlated - in the UK was pointing to steady growth, barring Brexit.

In Spain, a recovery was also ongoing, they pointed out.

"We suggest the business is well placed, with a materially stronger balance sheet than pre financial crisis."

Recent changes to its management team in the UK should also help Northgate step on the gas on its already reinvigorated UK performance, they said.

Changing hands on eight times the broker's estimate for the company's earnings for the next twelve months the shares were trading at a 24.0% discount to their historic multiple and at 1.0 times their price-to-book value, which made of an "attractive" valuation, Citi said.