Vp is a specialist rental business providing equipment and services to a wide range of markets including civil engineering, rail, oil/gas exploration, construction, outdoor events and industry, primarily within the UK, but also from overseas.
The UK construction industry ploughs ahead unabated. Building the 100ks of new homes the country desperately needs, together with updating often capacity constrained & dilapidated infrastructure (eg rail, power, water, airports, etc). Secular trends that should endure irrespective of Brexit. Indeed the Construction Products Association (CPA) reckon that despite a weak Q1 18 (-2.7%), UK building output will expand on average at 1.0% for the following 3 quarters (0.1% FY), before accelerating to 2.7% and 1.9% in 2019 and 2020.
So we remain confident that Vp will continue to outperform over the cycle. Indeed the firm's 'tried & tested' approach of focusing on renting specialist equipment, complemented by flawless execution and synergistic M&A - enabled it to post exemplary results once again this morning. FY18 revenues, adjusted PBT, EPS and dividends all climbed to £303.6m (+22.1%), £40.6m (+16%, ED £39.2m), 81.8p (+18%) and 26p (+18%) respectively. Propelled by an 'excellent' performance in the UK, where EBIT rose 20% to £43m - representing almost 98% (95% LY) of the business - on revenues 24% up at £272.0m (margin 15.8%).
Furthermore from a macro perspective, the leading operators seem to be expanding faster than the pack. Here the top 5 groups, who possess an approx 31% share, generate greater economies of scale. Enabling them to not only invest in the latest equipment/technology (eg remote diagnostic, safety enhancements), but also provide 24-7 national, same-day breakdown cover.
A 2-pronged strategy which paid off handsomely in FY18, as Vp was able to purchase Brandon Hire in November for £68.8m (biggest ever acquisition) at reasonable 2016 EV/EBITDA, EV/EBIT and EV/Book (debt/cash free) multiples of 5.6x, 11.5x and 1.9x.
At 940p, investors can access this double digit growth at a current year (CY) PEG of 0.6x. Indeed we have nudged up both our forecasts and valuation to 1,070p/share (vs 970p before) - on the back of the 'outstanding' FY18 out-turn and enhanced competitive position within tool hire.
