Digital Platforms And Urbanization Will Accelerate Logistics Efficiency

Key Takeaways

• Ongoing investments in digital platforms, fleet modernization, and strategic partnerships are enhancing operational efficiency, customer retention, and recurring revenue stability.
  
• Focus on urbanization, e-commerce growth, and sustainability initiatives positions Zigup to gain market share and capitalize on shifting industry trends.
  
• Margin and profit pressure is mounting from lower disposal gains, rising costs, a shift to lower-margin business, exceptional risks, and increased leverage limiting financial flexibility.

Catalysts

Engages in the provision of mobility solutions and automotive services to business and personal customers in the United Kingdom, Spain, and Ireland.

• Sustained investment in digital platforms-including AI-enabled contact center tools, upgraded CRM systems, and advanced customer self-service portals-positions Zigup to benefit from the accelerating shift towards technology-enabled logistics and transportation, improving efficiency, customer retention, and likely expanding net margins.
  
• Zigup's ability to capitalize on rising urbanization and e-commerce trends is evidenced by robust rental fleet growth, particularly in Spain, and expanding last-mile delivery infrastructure, fueling ongoing top-line revenue growth and positioning the company to capture further market share from both traditional ownership and less flexible competitors.
  
• Strategic partnerships and contract extensions with large insurers, e-commerce, and retail partners are driving volume growth on Zigup's platform, supporting recurring revenue expansion and enhancing the predictability and stability of future earnings.
  
• Material recent investments in fleet modernization, branch/service network expansion, and proprietary efficiency technologies (e.g., ADAS/repair tech, fleet management analytics, e-auction platforms) are expected to reduce operating costs and support a significant increase in steady-state cash flow from FY26-FY28, boosting future earnings and cash generation.
  
• Market normalization following pandemic-driven volatility, combined with a focus on sustainable, tech-driven mobility solutions-such as EV charging partnerships and efficiency-oriented green repair practices-positions Zigup to benefit from regulatory incentives and shifting societal preferences, enhancing both long-term revenue growth and operating leverage.

Zigup Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Zigup's revenue will grow by 4.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.4% today to 5.1% in 3 years time.
• Analysts expect earnings to reach £105.8 million (and earnings per share of £0.46) by about July 2028, up from £79.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.6x on those 2028 earnings, up from 9.5x today. This future PE is greater than the current PE for the GB Transportation industry at 9.8x.
• Analysts expect the number of shares outstanding to grow by 0.39% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.04%, as per the Simply Wall St company report.

Zigup Future Earnings Per Share Growth

Risks

• The normalization of disposal profits, which have previously been a significant contributor to profitability, is now resulting in lower year-on-year PBT, and as the business transitions away from these transient gains, future earnings growth may slow, directly impacting net margins and reported profits.
  
• Rising costs associated with wage inflation (notably National Living Wage and NI increases totaling about £10 million) and increasing operational expenses (such as fleet replacement costs after years of delayed CapEx) could put sustained pressure on operating margins if not fully offset by efficiency gains or pricing power.
  
• The shift in Claims & Services revenue mix to structurally lower-margin business lines (from credit hire/repair to direct repair/hire) is driving down overall segment margins, potentially leading to a structural reduction in profitability for this business line and putting a ceiling on earnings growth.
  
• Exceptional one-off costs-such as strategic withdrawal from lower-margin legal services, impairment charges, and cyber incident losses-signal underlying vulnerability to operational risks, which may recur under different circumstances, threatening cash flow and net profit reliability.
  
• There is increasing leverage (net debt up £95 million, leverage approaching the upper end of guidance at ~1.8x), driven by catch-up and growth CapEx; should market demand weaken or residual values soften unexpectedly, the business could face greater exposure to debt servicing costs and lower flexibility, constraining future earnings and dividend growth.

Valuation

• The analysts have a consensus price target of £4.66 for Zigup based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £5.3, and the most bearish reporting a price target of just £3.2.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £2.1 billion, earnings will come to £105.8 million, and it would be trading on a PE ratio of 13.6x, assuming you use a discount rate of 11.0%.
  
• Given the current share price of £3.4, the analyst price target of £4.66 is 26.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.