Fleet Expansion And Electric Vehicles Will Boost Future Operations In UK And Spain

Key Takeaways

• Strategic investments in tech, fleet, and EV infrastructure aim to boost operational efficiency and future revenue growth.
  
• Integration of services and digital expansion boosts margin potential and positions Zigup for increased net income.
  
• Heavy reliance on debt and the Spanish market poses risks, while shifting service mix and execution challenges may impact future profitability.

Catalysts

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

• Zigup is experiencing strong operational momentum with revenue growth across the UK and Spain, driven by a return to normalization post-pandemic and healthy demand, likely contributing to increased future revenues.
  
• The company is investing significantly in its tech stack and fleet expansion, which is expected to support operational efficiency and drive future revenue growth.
  
• The continued growth in the fleet to 132,500 vehicles and strategic investments in electric vehicle infrastructure signal potential for future revenue increases and improved EBITDA.
  
• Zigup's strong financial performance, including stable leverage and ongoing share buybacks, suggests a potential for sustained earnings growth and increased shareholder returns.
  
• The strategic integration of the company's claims and services sectors, coupled with the expansion of digital services, positions Zigup for future margin improvements and increased net income.

Zigup Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Zigup's revenue will grow by 3.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.1% today to 5.5% in 3 years time.
• Analysts expect earnings to reach £111.7 million (and earnings per share of £0.45) by about March 2028, up from £93.9 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.4x on those 2028 earnings, up from 7.4x today. This future PE is greater than the current PE for the GB Transportation industry at 9.3x.
• Analysts expect the number of shares outstanding to decline by 0.15% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.4%, as per the Simply Wall St company report.

Zigup Future Earnings Per Share Growth

Risks

• The company's reliance on debt financing for fleet growth and replacement could pose a risk if interest rates rise, potentially increasing their cost of capital and impacting net margins.
  
• Despite strong demand and financial performance in Spain, the reliance on the Spanish market's strength means any economic downturn there could negatively impact revenue and earnings.
  
• The company has seen reduced disposal profits due to normalization of residual values, which could continue to impact future earnings if this trend persists.
  
• A shift in the mix towards lower-margin incident management services might lead to sustained pressure on profit margins, potentially affecting overall profitability.
  
• Execution risk in expanding facilities and integrating new investments could lead to inefficiencies or cost overruns, potentially impacting future earnings and net margins.

Valuation

• The analysts have a consensus price target of £4.672 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 £3.9.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £2.0 billion, earnings will come to £111.7 million, and it would be trading on a PE ratio of 12.4x, assuming you use a discount rate of 10.4%.
• Given the current share price of £3.11, the analyst price target of £4.67 is 33.4% 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.