Ahead of announcing its Interim Results on Thursday 21st November, yesterday Speedy Hire (LON:SDY) issued a Half Year Trading Update covering the period to end-September.
The company’s Management considered that the trading performance in the first half had been satisfactory, set against a backdrop of challenging market conditions in some of its end markets.
The Business
Founded in 1977, Speedy Hire is the UK's leading provider of tools and equipment hire services to a wide range of customers in the construction, infrastructure, industrial, and support services markets, as well as to local trade, and retail.
The £165m-capitalised group operates from 144 Service Centres and on-site locations across the UK and Ireland, and through a joint venture in Kazakhstan.
It provides complementary support services through the provision of training, asset management and compliance services.
Its massive range of clients includes market leaders in the UK construction, infrastructure and industrial markets.
It supplies large national customers, including 86 of the UK’s top 100 contractors.
It also deals with local trade and industrial companies across the country, as well as with the general public.
The company hires out a range of tools and accessories, including access, lighting, survey, lifting, rail, safety equipment and ATEX, plant, site and traffic management, communications, and pipework and engineering equipment; compressors, generators, and pumps; and heating, ventilation, and cooling equipment.
It also sells access, lifting, survey, rail, and personal protective and safety equipment; various tools and equipment; and cutting, grinding, and sanding equipment, as well as site supplies.
In addition, the company offers partnered, fuel management, testing inspection and certification, advisory/technical, powered access, out of hours, building information modelling, and aviation services, as well as customer service centres, and training services.
The group provides a unique industry leading national four-hour delivery promise on its 350 most popular products.
It has some 300,000 itemised assets for hire and employs over 3,300 people.
In June this year the group signed off a significant infrastructure contract with Amey Group Services.
Amey, a prominent provider of engineering, operations, and decarbonisation solutions for UK infrastructure, chose Speedy Hire for its sustainability credentials and range of eco-friendly products, the board claimed.
The new long-term agreement, set to generate up to £25m annually, was expected to start in the second half of Speedy's financial year, after a transition period to ensure seamless integration.
The Trading Update
It was stated that the group’s Hire revenue for the first half was consistent with the first half of last year, although the lower margin Services revenue was 5% down, impacted by a decline in fuel revenues caused by a fall in wholesale fuel prices.
However, this was partially offset by growth in the group’s Lloyds British testing services.
As a result, the group expects to show that its revenue was marginally down compared to its first-half last year.
Net debt was higher than expected at around £112m, due to forward buying of more of its Hire fleet assets.
It was noted that the business made good progress mobilising new contracts and expects these to deliver significant growth in the second half.
As a result, it anticipates meeting its full-year expectations.
Broker’s View
Analysts Joe Brent and Sanjay Vidyarthi, at Panmure Liberum, rate the group’s shares as a Buy, looking for 47p as their Price Objective.
They estimate that the year to end-March 2025, will show increased sales of £465m (£422m), with pre-tax profits of £24.1m (£14.7m), lifting earnings to 3.9p (2.3p) and maintain its dividend at 2.6p per share.
For the coming year they foresee £465m revenues, £30.2m of profits, 4.9p of earnings and an increased dividend of 3.0p per share.
Looking further out, the analysts have pencilled in £485m sales, £37.1m profits, earnings of 6.0p and a 3.5p dividend.
My View
Even though the group’s shares eased back yesterday after the statement, closing at just 36p, I have to say that I have a sneaking feeling that Speedy Hire is going to do well over the next couple of years.
Furthermore, I reckon that its shares are cheaply rated and due to rise over the next few months, with a possible short-term price aim of 45p.
(Profile 15.10.19 @ 52p set a Target Price of 75p*)
(Profile 01.06.22 @ 47p set a Target Price of 60p)
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