Investors chronicle1 Mar 2016 22:14
Redde thriving as margin focus starts to pay off
From its indebted, tumultuous former life as Helphire, accident services provider Redde
(REDD) has come a long way. Three years ago a £60m fundraising round gave the company money for strategic investments, including developing a personal injury legal services business. And with more cars than ever on the road, the core business is flourishing: turnover was boosted by a 6 per cent increase in hire cases and vehicle repairs doubled compared with the same period last year
There has been an increased focus on higher-margin credit hires, where Redde provides the victim of a road accident with a replacement vehicle and repairs, recouping the money from the guilty party's insurer. These were up 9 per cent, compared with a 17 per cent reduction in the lower-margin direct hires. This also helped to increase operating margins in the accident management business from 7.1 per cent to 9.7 per cent.
The group benefited from £15m of revenue from claims management specialist FMG, which was acquired in October. Redde's legal services business NewLaw also agreed new partnerships in the period.
Analysts at N+1 Singer have upgraded their forecasts for full-year revenue and pre-tax profits. But due to the addition of non-cash deferred tax they continue to expect EPS of 9p for the year to June 2016, up from 7.9p in FY2015
IC VIEW:
Investor confidence has grown in recent months and left Redde's shares trading on a pricey 21 times forward earnings. But the growth prospects are good and the market is favourable, so there are reasons to be optimistic. There is also the strong dividend yield, though one eye should be kept on the earnings cover. Buy.
Last IC view: Buy, 159p, 4 Sep 2015
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