Redde Northgate

brand, which was still growing very strongly as the pandemic hit. Meanwhile, the group’s remaining rural and suburban pubs will become more structurally robust, should the current shift to greater working from home become more permanent. The second strand of our investment case is built on the fact that recent events have triggered the loss of around 30- 35% of existing capacity across the casual dining sector. Whilst we acknowledge that the barriers to entry in the industry are low, we foresee a period of several years during which the number of outlets will remain below its previous level. The operators that can continue to trade during this period will therefore disproportionately benefit from a backdrop of pent-up demand from consumers who have been unable to dine out for almost a year and have healthy levels of “forced” savings. In that context, the £175m equity raising round, announced on 10th March, seems sensible and will help the group to reduce its net debt position from a current level of around £400million whilst rapidly reducing leverage below two times earnings before interest, tax, depreciation and amortisation (EBITDA).

Overall, our case for investing here is not built solely on a vaccine-enabled rebound for the UK dining market. Having undergone a fundamental restructuring, the core of this business is now solid enough to support a better rating. Further, falling competitive capacity should help to drive earnings ahead of expectations as the economy unlocks.

Redde Northgate – driving profit

Redde Northgate is a mobility services business. It was created via the allshare merger of Northgate, a light commercial vehicle hire operation that contributed about 60% of combined group EBIT at the time, and Redde, a credit hire and repair firm that accounted for the remaining 40%. The rationale was that the two businesses, each with large vehicle fleets, offered multiple touch points into the transportation industry. In combination, they could wield stronger buying power with original equipment manufacturers (OEMs), boost fleet utilisation and create significant operational synergies. The characteristics of the combined group can be likened to those of EnterpriseRent-A-Car. Best known for its light vehicle rental business, it is also a significant credit hire player, and a major competitor on the Redde side of the business.

In common with other companies involved in transportation, the business suffered during the first lockdown. As restrictions were eased, however, Northgate’s fortunes improved such that, when it last reported, the firm was trading ahead of pre-Covid levels in the UK, Ireland and Spain. Having seen no discernible impact from the second lockdown we are hopeful about the impact of the third, as this division has benefitted from strong residuals in the UK light commercial vehicles market. These have helped to drive substantial returns and cashflows from disposals. The Redde Division, on the other hand, has been slower to recover. As the first UK lockdown was lifted, trading improved to reach around 20% below normal volumes in September. However, as restrictions were reimposed, activity fell to 30% below the monthly average for October and subsequently weakened further in November. With trading at reduced levels, management have continued to review costs and kept a proportion of the workforce in the UK Government’s furlough scheme. We understand, however, that the firm is participating in three live tenders with major insurers across both credit hire and repair services, so they will be keen not to cut too many more costs until the outcome is clear. Redde is fundamentally a very profitable business, that generates a run rate EBIT of £4m per month based upon pre-Covid trade volumes. Yet, the market seems to be assuming that much of this contribution will evaporate. We believe that a surge in activity as the UK vaccine roll out progresses, alongside the scope for some large tender wins that will drive market share, could result in material upgrades to earnings expectations in the 2022 financial year.

Meanwhile, although the significant synergies that have flowed from the merger have not been totally ignored by the market, we also believe that they have not been fully appreciated. In particular, we are excited by the expanded service proposition that the combined group can offer. It appears that the management team has been able to pitch for, and win, the sorts of major project that the two businesses could not have secured in isolation (for example in the e-commerce space, possibly with the likes of Amazon). The ability to hold down this type of larger contract that offers a greater service component and the ability to create true “turnkey” mobility solutions, should boost the quality of earnings and margins whilst reducing capital intensity. Given that, at the time of writing, the shares only trade on around eight times 2022 earnings, with a 6% dividend yield, we continue to see significant upside. ●

Winning ways

Mike Savage and Peter Bate manage around £130m in their discretionary segregated service that focuses on UK smaller companies. We are delighted to let our clients know that Mike Savage has made the shortlist for the Fund Manager of the Year at the prestigious 2021 PLC Awards.

For further details, please speak to your Investment Manager.

The founder of Rebecca Page discusses how she launched a successful home sewing pattern business and overcame the challenges of growing it during a pandemic.

Where did your passion for home crafts, and sewing in particular, come from?

I learned to sew aged eight and immediately fell in love with it. Back then I naturally had no idea that I would one day turn it into a business. People are sometimes surprised to learn that, even years later, I am still learning and developing my sewing skills. The same is true when it comes to sharpening the very different ones required to set up and run a commercial enterprise. In both cases, I think the key is to remain curious, keep expanding my range and never stop listening to people, whether they are my mentors, staff or customers.

How did you turn home sewing into a business?

Since a young age, I have always had the kind of mind that constantly comes up with new products, different ways to solve existing problems and creative solutions to fill gaps in the market. However, entrepreneurship demands other skills too, otherwise the results would too often be scattergun – nothing would get properly converted into a commercial proposition. For me, a big challenge when it came to creating a business was having to learn to slow down, be more patient and to systematically identify my best ideas for further testing. It helps that I am secretly a bit of a data nerd – indeed, it is crucial to business success nowadays. I genuinely get excited about digging into numbers and carrying out detailed analysis on what is working and what is not. It is that side of my brain that helps me to sieve ideas and pick out one that is going to move us to the next stage of our business journey. Without rigorous testing, ideas are just that. The iterative process I now follow of constant testing, tweaking, and reviewing lies at the heart of the Rebecca Page business model. I owe a lot of this rigour to my very experienced business partner, Janine Manning. We met at the New Zealand Business Women’s Association, where she was the mentor on an entrepreneurship program. Her background in starting, advising, funding, and growing many small businesses made her invaluable and I am hugely grateful that she agreed to support me. Since our first meeting, the business has grown from just the two of us to one that employs over 40 people. Right from the start, she channelled my abundant energy and forced me to focus on designing and delivering the best patterns for customers, underpinned by detailed testing. Until we know how far a product can go in terms of sales, we can’t make an informed decision about whether, or not, to scale it. Nothing is left to chance – if the data supports an initiative, we take it forward and if it does not, we modify or drop it. This approach has brought us to the point where we can already look to scale up to pursue some aggressive growth targets.

Making it

Rebecca Page

CEO and entrepreneur

Who is your typical customer?

Our biggest market is the US, which accounts for around 45% of our customers. The UK represents about 15%. After that, the next biggest segment is Australia, which fits into what we call the “rest of world” category. As for our demographic, our newsletter and social media profiling tell us that we appeal heavily to women aged over 45. Interestingly, however, those aged between 35 and 45 spend the most money, per head, with us. Meanwhile, our fastest growing segment is the 25 to 35 age group. That’s exciting because home sewing has tended, traditionally, to be seen as rather cottagey and cute – something for an older market. Yet, as our brand evolves, we are serving a growing younger audience too. I believe we can reconcile the two by recognising that our customers all want to wear something which is comfortable yet fashionable, rather than dated and staid. That is true whether they are 35 or 65. In contrast to some of the biggest firms in our space, who are very conservative when it comes to patterns and designs, we aim to offer something fresher and sharper. Take the simple cardigan – many of the traditional home sewing patterns generate a product that is frankly old-fashioned. Our templates, on the other hand, allow for more individual styling, whether that comes through a more loosely fitted look, oversized sleeves, or both.

Another interesting trend we are seeing is a shift away from home sewing as a market dominated entirely by women. Lockdown boredom may have played a part in bringing more men into home crafts such as sewing and baking, but I also think it reflects a broader willingness to widen their creative skills.

How has the pandemic affected your business?

We have been relatively fortunate. Firstly, national lockdowns have stranded people at home with time and money on their hands. We have found that many of them have gradually migrated to a whole new way of dressing for the office Zoom call. My husband, a barrister, is a prime example – he dresses completely differently away from his Chambers, or the Courts, to the way he did 18 months ago. More broadly, we have benefited from people moving away from wearing the first clothes they can find in their wardrobes. We have seen demand for our patterns grow as customers in all categories look around for new ideas that combine comfort with individualised fashion.

We are also well-positioned to service a growing segment of people who want to know how their clothes are made, where they come from, and how far they have been shipped, or flown. Naturally, not everyone who shares these concerns wants to have to make their clothes themselves at home using our designs. That is why a key stage in our near-term development is to offer local seamstresses who can make garments from one of our patterns on behalf of customers.

What is your growth strategy?

Although home sewing is the primary and largest market we are targeting – worth around $150bn across its various verticals – it is not the only one. We also want to enter the education space as more people try classes online to learn new skills, such as sewing, crochet or knitting. A third strategy strand, which I mentioned earlier, is creating a marketplace for customers who like our philosophy but do not have the time or the skills to make garments themselves. We want to therefore create a network of specialists who can fill that gap, in many cases by running their own local, franchised businesses.

How have you built your team?

Expanding from a base of two to over 40 members of staff in under three years has put the spotlight firmly on recruitment. We have sometimes used low-cost platforms, such as Upwork, but we have also had a lot of success from advertising through our own community on social media. Often, we will flag a position and within hours we’ll have 500 applications for it. The key is to be disciplined – we have broken down the pattern-creation, production and delivery process and hired each of the different functions in a way that makes it completely systemised. That model should allow us to move easily into other verticals, such as crochet or knitting. Technology is also a key part of our offering. We are therefore focusing time and effort into getting the right people engaged with our website to improve its functionality and speed. Our future success will be built, in no small part, on our ability to harness data in a much cleverer way than the incumbent players in the patterns space. The advantage of being relatively small is that we can design new products and processes, unencumbered by legacy ideas and overheads. As we scale up, we will be filling the more senior positions too. That will present some new challenges for me, in terms of letting go of parts of the business. That is where having Janine at my side will be a huge help as she has successfully managed that transition many times elsewhere.

What is the key requirement for a budding entrepreneur in 2021?

I would single out data-awareness. Gut feel only gets you so far in today’s e-commerce dominated world. For example, I may believe that one web page will work better than another, but how do I really know? Data-driven insights are critical – if I can lift engagement on a social media campaign by three percent, it might quadruple my projected first month of revenue on a product line. That, in turn, could be the difference between a decision to scaleup, or change course. Without that sort of insight, we would just be a collection of ideas and talented people. At a higher level, data is also the key to our company valuation, because future investors will expect our growth projections to be underpinned by rigorously tested assumptions. Hard metrics, such as our conversion rates, are the key to building financial models that will supports a business valuation at each stage of our growth path.

What keeps you awake at night?

Very little, thankfully, when it comes to my personal life. I am happily married with three great children. Juggling my work and home life has been a challenge during lockdown but we are not too different, in that regard, to many other families.

In business terms, it can sometimes be a different story. If we are having a below-target month for example, I toss and turn like every other entrepreneur. I am also regularly plagued by my brain’s constant stream of new ideas. Some nights it is therefore a relief when my mind finally goes blank – I just wish it would happen more often! ●

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