What do UK investors most want for Xmas? Well given the angst from the US/China trade spat, UK General Election and Brexit limbo, we suspect greater clarity would be towards the top of Santa's list.
The good news is that we think much of this uncertainty could be resolved over the next few months. Providing not only a welcome boost to capital investment, but also a lift to specialist plant hire firms like Vp - who this morning posted resilient 1st half figures, and said they were on track to deliver FY20 expectations (ED Est: PBTA £49.6m).
Here H1 20 adjusted EBITDA, PBTA, EPS (pre IFRS 16) and ROCE all came in flat YoY at £51.8m (+0.4%), £25.9m (+0.3%), 52.5p (+0.2%) & 14.5% respectively, despite strong comparatives and turnover easing -3.4% to £186.6m. The latter reflecting softer conditions in commercial construction & civil engineering (eg London & the South East) - exacerbated too by completion of the 5-year Water (AMP 6) & Rail (CP5) programs.
Albeit equally offset by higher EBIT margins (15.2% vs 14.6% LY) thanks to Brandon synergies, tight cost control and improving demand at Airpac Bukom (oil & gas), where new fleet has been ordered. Highlighting Vp's downside resilience, differentiated service offering and focus on specialist equipment.
With regards to valuation, we calculate the shares to be worth £10.75 each - potentially offering >20% upside to patient investors - and see real upside in the event there is an industry wide upswing (re 'mini Boris Boom') once the Brexit induced logjam has cleared.
At 890p, the stock trades on EV/EBITDA, EV/EBIT and PER multiples of 5.0x, 9.6x and 9.0x, equivalent to a 10%-30% discount vs the equipment rental sector.
