Overview
Redde Plc (LON: REDD) is a United Kingdom-headquartered consumer services company incorporated in the year 1992, which provides services related to accident management. The group mainly works with prestige motor dealerships, insurance companies, and insurance brokers. Redde is a Latin word which means restoration. The company also provides assistance and services related to non-fault accident management, legal services and fleet management. The company has an employee base of more than 2,400 professionals. The company, through rental partnerships, has access to more than 50,000 vehicles and manages nearly 7,000 vehicles of its own fleet. The group companies include Auxillis Limited, NewLaw Legal Limited, Auxillis Services Limited, Principia Law Limited, FMG Group Support Limited and Cab Aid Limited. The company, through the FMG group of companies with more than 300,000 fleet vehicles, provides incident management services and specialised large fleet accident. The company also through its operational call centre in Croydon, Huddersfield, County Durham and Peterlee provides accident management services. The company via Bristol-based NewLaw Legal Limited, Northwich based Principia Law Limited, Cardiff and Glasgow based associated office provides solicitors services. The company is known for its high-quality services.

John Davies is the Non-Executive Chairman of the group since August 2019. The Chief Executive Officer of the group is Martin Ward and was appointed as CEO in October 2011. The CEO is supported by Stephen Oakley, who is the Group Chief Financial officer.

Key Statistics



Top Shareholders

 

Recent News

On 29th November 2019, Redde Plc announced the share-for-share merger with Northgate plc. The implementation of the merger will be done by Court-sanctioned scheme as per Part 26 of the Companies Act. As per the scheme, Northgate will acquire all the shares issued and to be issued by Redde. The merged entity will be called as Redde Northgate Plc. The merger will act as an attractive opportunity for both Redde and Northgate.

Financial Highlights – Financial Year 2019 (30^th June 2019, GBP, thousand)


(Source: Annual Report, Company Website)
 
For the financial year ending 30^th June 2019, driven by an increase in credit hires by 9.4 per cent and increase in repairs undertaken by 5.2 per cent for the period, the company’s revenue surged by 11.9 per cent to GBP 589,724 thousand as against GBP 526,981 thousand in the financial year 2018. The gross profit stood at GBP 137,690 thousand in the financial year 2019 versus a gross profit of GBP 127,782 thousand in the financial year 2018. For the financial year 2019, EBITDA declined by 0.9 per cent to GBP 54,919 thousand against the EBITDA of GBP 55,435 thousand in the Financial Year 2018. The company’s adjusted operating profit (from continuing operations) stood at GBP 44,315 thousand in FY2019 versus an adjusted operating profit (from continuing operations) of GBP 43,985 thousand in FY2018. The company’s operating profit (from continuing operations) stood at GBP 36,681 thousand in FY2019 versus an operating profit (from continuing operations) of GBP 36,776 thousand in FY2018. The adjusted EBIT stood at GBP 49,576 thousand in FY2019 versus an adjusted EBIT of GBP 46,191 thousand in FY2018, reflecting an increase of 7.3 per cent for the period. The adjusted EBIT margin stood at 8.4 per cent in FY2019 versus an adjusted EBIT margin of 8.8 per cent in FY2018. The EBIT stood at GBP 41,942 thousand in FY2019 versus an EBIT of GBP 38,982 thousand in FY2018, reflecting an increase of 7.6 per cent for the period. The company’s adjusted PBT (Profit before tax) surged by 7.1 per cent from GBP 46,021 thousand in the financial year 2018 to an adjusted PBT (Profit before tax) of GBP 49,288 thousand in the financial year 2019. The company’s PBT (Profit before tax) surged by 7.3 per cent from GBP 38,812 thousand in the financial year 2018 to a PBT (Profit before tax) of GBP 41,654 thousand in the financial year 2019. The company’s PAT (Profit after tax) stood at GBP 34,506 thousand in the financial year 2019 versus a PAT (Profit after tax) of GBP 34,528 thousand in the financial year 2018.The adjusted basic earnings per share surged from 13.27 pence in the Financial Year 2018 to adjusted basic earnings per share of 13.44 pence in the Financial Year 2019, reflecting an increase of 1.3 per cent. The statutory basic earnings per share declined from 11.36 pence in the Financial Year 2018to statutory basic earnings per share of 11.28 pence in the Financial Year 2019. The adjusted diluted earnings per share stood at 13.21 pence in FY2019 versus adjusted diluted earnings per share of 13.07 pence in the financial year 2018. The statutory diluted earnings per share stood at 11.08 pence in the Financial Year 2019 versus statutory diluted earnings per share of 11.19 pence in the financial year 2018.

Key Performance Indicators


(Source: Annual Report, Company Website)

Revenue

Revenue is the income generated by the company from its normal day to day operations. Redde Plc showed an increase in the revenue by 11.9 per cent to GBP 589,724 thousand in FY 2019as against GBP 526,981 thousand in the financial year 2018.

Profit before tax


Profit before tax (PBT) gives the earnings available to the company before taxation paid by the company. The company’s PBT (Profit before tax) surged by 7.3 per cent to GBP 41,654 thousand in the financial year 2019 from GBP 38,812 thousand in the financial year 2018.

EBIT

EBIT (Earnings before interest and tax) gives the earnings of the company before paying interest expenses and tax charges. Redde Plc’s EBIT surged by 7.6 per cent to GBP 41,942 thousand in FY2019 from GBP 38,982 thousand in FY2018.

Adjusted Basic Earnings Per Share

Adjusted basic EPS is used to check the quality of EPS (earnings per share) of the company. The company’s adjusted basic earnings per share surged by 1.3 per cent to 13.44 pence in FY2019 versus adjusted basic earnings per share of 13.27 pence in FY2018.

Financial Ratios

 

The reported gross margin in FY2019 declined by 0.9 per cent to 23.3 per cent as against gross margin of 24.2 per cent reported in last year for the same period. The reported EBITDA margin declined for the FY2019 to 9 per cent versus the EBITDA margin of 10.1 per cent reported in last year for the same period. The reported operating margin declined for the FY2019 to 6.2 per cent versus the operating marginof 7 per cent reported in the last year for the same period. The reported Pretax margin stood at 7.1 per cent for the FY2019 as against Pretax margin of 7.4 per cent reported in last year for the same period. The company reported a net margin of 5.9 per cent for the financial year 2019 as against a net margin of 6.6 per cent reported in the last year for the same period. Return on equity for the Financial year 2019 stood at 21.5 per cent versus a return on equity of 21.6 per cent in last year for the same period. On the liquidity front, Redde Plc’s current ratio stood at 1.16x and was higher than the industry median of 1.01, reflecting sufficient current assets to pay its short-term obligations. On leverage front, the debt-equity ratio of the Redde Plc’s was 0.29x, which was lower as compared to the industry median of 1.31x, reflecting that the company is less leveraged as compared to its peers.

Share Price Performance


Daily Chart as at December-17-19, before the market close (Source: Thomson Reuters)

On December 17, 2019, at the time of writing (before the market close, at 10:25 AM GMT), ReddePlcshares were trading at GBX 109.00, up by 0.18 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 187.80/GBX 82.30. The shares of the company have delivered a positive return of 7.92 per cent in the last six months. The company’s stock has given investors 2.44 per cent of a positive return in the last month. Stock’s average traded volume for 5 days was 1,931,476.60; 30 days – 3,918,130.33 and 90 days – 2,019,019.92. The traded volume (average) for 5 days was down by 50.70 per cent versus 30 days average traded volume. The group’s stock is reflecting significantly lower volatility as against the benchmark index based on the company’s beta of 0.44. The outstanding market capitalisation was around £333.77 million, with a dividend yield of 10.71 per cent.

Valuation Methodology
Method 1: Price/Book Value Multiple Approach (NTM)



To compare Redde Plc with its peers, Price/Book Valuemultiple has been used. The peers are Stagecoach Group Plc (NTM Price/Book Valuewas 5.95), Global Ports Investments Plc (NTM Price/Book Valuewas 2.13), National Express Group Plc (NTM Price/Book Valuewas 1.94), FirstGroup Plc (NTM Price/Book Valuewas 0.91) and Northgate Plc (NTM Price/Book Valuewas 0.72). The average of Price/Book Value(NTM) of the company’s peers was 2.33x (approx.)

Method 2: Price to Earnings Approach (NTM)


To compare Redde Plc with its peers, Price/Earnings multiple has been used. The peers are Irish Continental Group Plc (NTM Price/Earnings was 17.46), Stagecoach Group Plc (NTM Price/Earnings was 12.08), Northgate Plc (NTM Price/Earnings was 8.19), Rotala Plc (NTM Price/Earnings was 6.55) and Eddie Stobart Logistics Plc (NTM Price/Earnings was 0.46). The Average of Price/Earnings (NTM) of the company’s peers was 8.94x (approx.)

Risk Assessment and Growth Prospects

The company’s financial and operating performance is affected by the economic conditions and ongoing Brexit, as it impacts the supply chain. Due to a higher level of debt, the company might enter into credit risk in the near future.The new business in the pipeline will help the company to expand its operations and to gain more market share. The company continue to invest in the working capital to meet its strategic goals. The market in which the company operates will continue to grow and expand in the future, to benefit from this expansion, the company actively looking for acquisitions.

Conclusion

The company’s supply chain will be disturbed by the effects of ongoing Brexit. In the United Kingdom, the company’s financial and operating performance are affected by the economic conditions. The company had shown decent financial performance with both Top-line and Bottom-line performance improved for the period. The company’s legal services business had shown decent growth potential.

From the perspective of the market, the members of the ABI (Association of British Insurers) mentioned that the cost of repairs has surged, driven by the increased repair cost of realigning and the costs of bumper safety sensors. At the same time, the lag in the availability of several spare parts sourced from overseas and the rising complexity of repairs has accelerated the repair times.The company’s merger with Northgate will act as an attractive opportunity and will provide strategic benefits in future.

As a result, the positive impact on working capital is anticipated to increase traction later in the fiscal year 2020 to accommodate this extension. The company has won several new contracts in other regions of the Redde PLC as well as a contract renewal with a key insurer, all of which have contributed to the Board’s confidence in its anticipations for the fiscal year 2020.  

Over the course of 4 years (FY15 - FY19), the company’s revenue surged from £248.7 million in FY15 to £589.7 million in FY2019. Compounded annual growth rate (CAGR) stood at 24.09 per cent.
 
Based on the decent prospects and supported by valuation done using the above two methods, we have given a “SPECULATIVE BUY” recommendation at the current price of GBX 107.60 (as on 17^th December 2019, before the market close at 10:15 AM GMT) with lower double-digit upside potential based on 2.33x NTM Price/Book Value (approx.) on FY20E book value per share (approx.) and 8.94x NTM Price/Earnings multiple (approx.) on FY20E earnings per share (approx.).
 
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.

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