ZIGUP – acquisition target with 100-200% upside

When you receive this Weekly Dispatch, I will have just finished co-hosting an event for fund managers and high-net-worth investors in Dallas, Texas.

For this event, I arranged for a handful of highly experienced fund managers to fly in from around the world – including Europe, Australia, Asia, and domestically from New York. Earlier today, they shared some of their best ideas with American investors.

One of the stocks presented was ZIGUP PLC, a London-listed company with a GBP 800m market cap.

If (or when) ZIGUP ends up in the crosshairs of a bidder, the stock should have 100-200% upside.

Takeover mania in the UK

British equities have been cheap, and their low valuations continue to attract lucrative bids.

Over the last 12 months, over 50 (!) takeover offers for publicly listed UK companies have been completed. More such approaches are in the pipeline, with the monthly count of bids intensifying of late.

The UK is the world's fifth-largest public equity market, after all. Shareholder rights and corporate governance are fairly strong, and many UK companies are effectively international, with the majority of their sales generated abroad.

The following charts illustrate why these companies are such obvious targets, showing that UK equities remain cheap despite the market's recent advances.

Source: J.P. Morgan, 6 October 2025.

Source: J.P. Morgan, 6 October 2025.

Source: J.P. Morgan, 6 October 2025.

Source: J.P. Morgan, 6 October 2025.

Source: J.P. Morgan, 6 October 2025.

Of course, cheap stocks can stay cheap for a long time. That's why it's important to focus on UK takeover candidates that would still be good investments even if no bid materialises. The key is finding companies with a clear catalyst for a stock re-rating and a path to generating a good return.

Benjamin Isaac, of Brizo Capital in New York, believes that ZIGUP fits the bill.

A hidden market leader

Few investors are even aware of ZIGUP (ISIN GB00B41H7391, UK:ZIG), owed to the fact that the company has only been in existence for a short time.

In 2020, UK firms Redde and Northgate merged to form a larger, integrated mobility solutions provider. Northgate operated a light commercial vehicle rental business, while Redde specialised in accident management and repair services.

In May 2024, the combined group rebranded as ZIGUP, reportedly reflecting a more forward-looking, technology-enabled strategy and a renewed focus on its purpose to "keep customers moving, smarter". The operative businesses continue to trade under their old brands – another reason why so few people would be aware of ZIGUP today.

ZIGUP owns a fleet of 130,000 vehicles and operates 180 branches across the UK, Ireland, and Spain, making it the largest business of its kind in the UK. In addition to vehicle rental, the FTSE-250  company provides fleet management services (with 900,000 vehicles under contract), claims management and accident support, repair services, and a host of ancillary services.

In fiscal 2025 (ended 30 April), ZIGUP generated revenue of GBP 1.8bn, EBITDA of GBP 464.5m, and profit before tax of GBP 166.9m. With net debt of GBP 836.7m and a market cap of GBP 778m, it has an enterprise value of GBP 1,615m.

Trading at just over 3x EBITDA, the stock immediately looks cheap. Last year's earnings per share of 58.4 pence imply a price/earnings ratio of 5.8x (and lower even for the upcoming years) at the current share price of 340 pence. The fact that it trades at just 0.75x book value fits right in with that.

Despite these metrics, the share price has remained essentially flat for the last 17 years.

This raises the question: what's holding it back?

ZIGUP.

ZIGUP's low valuation is symptomatic of the UK market for smaller and mid-sized companies. Most of the company's stock is held by various fund management firms, many of which have suffered outflows for nine consecutive years – including 42 of the last 43 months. With little new capital entering the market, demand for shares remains muted.

That situation is unlikely to change – unless a bidder emerges or management takes the decision to change how it allocates capital.

Gradual re-rating – or lucrative bid?

ZIGUP has a strong management team.

During the 2010s, Redde was a popular stock, because its management delivered a 10x of operating profits. Although smaller than Northgate in both size and market cap, it was Redde's management team that took the helm of the newly merged company.

The team has managed the business very conservatively so far. ZIGUP's debt stands at just 1.6 times EBITDA, compared with 2.5-3x for comparable firms.

For 2027, management forecasts free cash flow of GBP 200m. Given ZIGUP's leading market position in an industry with high barriers to entry, management could choose to lever the balance sheet and return capital to shareholders in form of a special dividend. More accretively, it could simply buy back more stock on an ongoing basis.

Even just based on the current dividend, the stock is yielding 8% p.a.

Executive compensation has just been dramatically improved. Other potential improvements include improved IR communication or (as an outlier idea) a relisting to Canada where a close peer trades at 12x EBITDA. ZIGUP could help investors see the stickiness and consistency of the business and provide more information on the drivers of its future growth.

In the absence of such measures, a bid for the company may ultimately be only a matter of time.

Private equity loves companies of this type: highly cash-generative, operating in a "boring" industry with a growing degree of recurring revenue for ongoing services, and an under-leveraged balance sheet. The broad variety of fund managers that currently dominate the list of shareholders would likely be only too happy to cash out if presented with an attractive offer.

What might such a price look like?

A useful benchmark comes from early 2025, when KKR acquired Dawsongroup, a leading UK asset leasing business that also provides vehicles. While the terms weren't formally disclosed, indications suggest the business was acquired for at least 5.5-6x EBITDA, and possibly as much as 10x EBITDA – despite Dawsongroup showing little EBITDA growth in the prior three years and having higher balance sheet leverage.

Translated into a bid for ZIGUP, that'd make the share price go up by 100-200%.

ZIGUP is a market-leading business, and its stock is traded on a major market with decent liquidity. A bidder offering 100-200% above the current share price would be an unusually high bid premium.

However, this reflects the current situation of the UK market. As reported previously on Undervalued-Shares.com, bid premia have been abnormally high in recent years due to the market's generally low valuations. There were other transactions that have seen premia of 50-70%, and sometimes as high as 100-150%. In addition, ZIGUP's share price would likely rise ahead of a bid, meaning the eventual bid premium would be a lower percentage figure.

When could ZIGUP see a bid, and will it ever be the case?

It almost doesn't matter, as there are early signs that management is taking steps to address the stock's low valuation. Since the merger with Redde, the company has bought back GBP 90m of stock.

One way or another, the stock appears to have limited downside but fairly significant upside – a profile typical of the opportunities currently available among UK equities.

With such bargains in one of the world's leading economies, why even bother to look to more exotic locales?

It's a question that I believe will encourage a growing number of investors to refocus on UK equities.

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