Vp is a specialist rental business providing equipment and services to a wide range of markets including civil engineering, rail, oil and gas exploration, construction, outdoor events and industry, primarily within the UK, but also overseas (Estimated at 12% of sales).
Quality stocks seem to consistently outperform their peers through both ‘thick and thin’ - and for specialist equipment hire business Vp, this certainly seems to be the case. You see, during the 2008-9 financial crisis the company’s downside resilience helped it cope admirably amid some of the toughest conditions in living memory – while many of its rivals only escaped bankruptcy by the skin of their teeth.
Indeed this morning there is another encouraging pre-close update saying results for the y/e March 2017 would be “in line with current market expectations”, after “positive” winter trading (re mild weather supporting UK building activity).Here, we think that the group continued to experience robust demand in H2 across its Ground Force, Hire Station and UK Forks divisions, along with not being unduly affected (re Torrent Trackside) by recent construction delays at Network Rail which has temporarily impacted the likes of Van Elle’s specialist piling operations.
Furthermore, the Board also announced the £3.6m acquisition of Jackson Mechanical Services (UK) Limited, which operates from Harpenden/Leeds and will be integrated within Hire Station. This appears to be another a sensible bolt-on deal and should prove to be earnings accretive in year 1.
We make no change to our FY 17–18 PBT estimates of £33.7m and £35.8m respectively, and await full details of the transaction at the prelims in June. In terms of valuation, the stock at 800p continues to rate as good value trading on EV/EBITDA, EV/EBIT and PER multiples of 6.2x, 11.7x and 11.7x - whilst delivering better than sector average ROCE and offering a 2.6% dividend yield.
