Zigg Up is undervalued and fundamentally strong, but management has failed to act on capital allocation opportunities like buybacks, leading to disappointment despite high potential upside from incentive plans.

the company is Zigg Up. This is the former writing Northgate. I I actually own a little bit of this company. So it's a company that provides what they call mobility solutions. I call that they're renting out commercial vehicles.

If you want to move house, you need a white van, a man with a van. Uh then Ziggup is a company to call. They've got the largest market share for the rental of commercial vehicles in the UK.

They've got specialty vehicles as well, like things with refrigeration and stuff like that. They also do a whole range of services. They provide a range of services that fall into that same category like fleet management for corporations, uh claims management in case of accidents and replacement vehicles for accidents, that sort of thing.

They're the largest such operator in the UK. Uh they're growing nicely at singledigit uh rates every year and they're also operating a business like that in Ireland and also in Spain.

after the merger, Ready and Northgate, you mentioned it in 2019, they obviously had COVID to deal with. So there's been a period of significant change and external complications because of the pandemic.

And then the whole boom from the pandemic obviously cooled off as well. So this company has had its fair share of challenges as well.

But management and let me just say this very clearly. Management has done a very very good job executing making sure that this business is successful and it is a good business. It's just so damn cheap.

I wrote about it in October last year already and it was trading at three times EBA and right now the share price has gone up a bit but it's still below four times EITA and this is the business that's underlevered as you know in my view and we can we can talk about that a bit further and it's just screaming out for a share buyback and I've written a letter to the board saying you guys you know my suggestion is I strongly suggest and I really advocate for looking at your leverage ratio So carrying out share buybacks, ideally a tender offer, do something about your capital allocation.

So much other stuff at your company is going so well, but your share price looks like it's not going that well. The share price has gone nowhere for 18 years. No, that is very true.

Uh I want to ask some questions about that. before I mean the reason I got interested in here and I I think something that really helps stage this is they have the VIP plan or MIT plan whatever you want to call it the value incentive program that they give to management I I got involved because this is really it's not unique in the US though it's a signal I I really look for it's kind of my dark corporate dark art signal but it's really unique in the UK so do you want to talk about the the VIP plan and then I can kind of follow up with my questions after we set the ground work with that

yes so very unusually they've implemented the they call it the VCP, the value creation plan, where seven senior management members are incentivized to get the share price up. And the way how it works is actually quite simple.

Above a certain hurdle, which is a share price of 521 p, they get 10% of the added shareholder value up to a maximum level of 800 p per share. That's where it's capped. And they get, you know, if this bonus materializes, they get it issued as shares.

And then there's a lock up on these shares. But in a way that's detail. The interesting thing is that the seven management members can earn a total of69 million pounds in bonus shares.

The CEO would receive up to 19 million pounds of that. The CEO has been running this company and the the predecessor for for many many years. He's 59. So this would probably be a very nice um reward ahead of a potential retirement at a later stage.

And we're speaking big numbers here. I mean a 69 million pound bonus split between seven people is you know is a transformative amount of money for most people who are in employment.

Uh it is a very simple system and it immediately gets across why this is good for shareholders because they only get anything if the share price is at least at 521 p. Right now it's 430 and it's all on a very tight timeline.

They have to deliver this until April 28. Uh this whole thing was put in place a year ago. So we're already a year into it and it's amazing the share price hasn't reacted more strongly to it in my view.

I think this is one of I mean you're the man for the dark arts of of incentive schemes but I think this is such an incredibly powerful signal uh that I'm amazed the share price hasn't reacted to a you know much bigger extent but here we are

and you're effectively looking at a business that's leading in its industry. Uh it's growing. It's been at an inflection point for its free cash flow. Last year, free cash flow rose from 17 million pounds to 96 million and they're now looking at getting this above 200 million by 28.

Um the the company is also a potential platform for private equity to come in and consolidate the industry. They're the market leader. So, you know, this is just waiting for a private equity player to step in.

I don't think in two or three years this will still be an independent company. I think someone will have made a bit for it and this is where the danger lies but also the opportunity they have to somehow get their valuation they have to get their share to rerate and trade at a higher multiple because otherwise it's just gifting money to private equity because they're going to get way too good a deal and that's what we have to avoid.

So that's perfect. And as you said, the reason I got an interest here was I I believe a mutual friend pointed this out and I was like, "Holy holy smokes. I've looked at a hundred UK companies and I've never seen a a VIP plan like this before.

I can't I want to call it a MIT plan. I think it's a BCP, but I we I'm just combining them." But I I've never seen a plan like this before, except one other company that had done in like the past 10 years.

Yeah. And I mean just to you know give credit where credit is due. I believe some UK fund managers had a hand in this company implementing. So you know it's not like I'm bashing the entire fund manager sector there.

There some very good outliers in there and this was a case of positive investor engagement.

That's that's almost certainly true. But you know I I don't think at other companies I think shareholders have pushed for something similar and this was the first one I saw that implemented. So I got really interested.

But I will tell you I have been a little disappointed by the company because what I thought was going to happen, you know, and I I probably bought the shares about a year ago when I saw the the plan and the plan I mean the stock was like 300 when you did it.

It needs to hit like 520 in the low end. I was like, "Oh, just hit the low end just to start accuring money. The stock's got to be like 25% annualized from here to the end date."

That was kind of what triggered me and took me from this is just your typical UK cheap company to this interesting.

But I've been a little disappointed because they have not bought back shares since they announced it. They've announced buybacks, but I don't believe they bought a single share since they put the P plan in place.

They've stuck with the dividends. And I'll talk about their IR strategy in a second, but you know, they've they've invested into this Spanish platform into some growth assets that they say are really good, but I keep hitting them with, hey, everything is opportunity cost and your stock trades below book value.

You're saying your stock trades way below private market value. I understand you might have an attractive growth opportunity, but that is a risky growth opportunity. You know, investing into this new market.

Buying back stock is not a risk opportunity. Selling the Spanish assets, that new market we're talking about, where they will tell you that they think those Spanish assets are massively, massively valuable, worth way more than book value.

Selling that to a private equity firm when everyone says there's a private equity bid and buying back more shares or taking advantage that like all of these are options and haven't really pursued them.

So, I've been a little disappointed. And the last thing I'll mention, dividends. They pay out a pretty big dividend, you know, which is nice, but they they could be buying back shares.

And I've pushed them, cancel the dividend and buy back shares, and it's just fallen on deaf ear. So, I've just been a little disappointed where they put the plan in place, and I thought it was off to the races, shareholder friendly, let's go. And I haven't seen that so far.