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.
Despite Brexit dominating headlines, grass roots demand remains robust, especially across new build housing and infrastructure. And only 3 weeks ago the Office for National Statistics said the construction industry had enjoyed an ‘Indian summer’, with Q3 output expanding at a 2.1% clip, after experiencing a -1.6% Q1 decline (cold winter) and a 0.8% rebound in Q2 (wet spring).
Likewise, Vp is showing few signs of a slowing-down: this morning reporting “another excellent set of results with revenues, profits and EPS all significantly ahead”. H1’19 turnover, adjusted PBTA, EPS and dividends all climbed by double-digits to £193.2m (+42%, Est LFL 13%), £25.9m (+22%), 52.3p (+18%) and 8.2p (+21%) respectively. Beating our H1 PBTA estimates by 3%, and providing a comfortable cushion in the event of a future hard-Brexit.
Divisionally, trading at Torrent Trackside (£48bn CP6 rail), TPA (transmission) and Groundforce (AMP6, water infrastructure) was strong, augmented by supportive conditions at Hire Station, UK Forks and Brandon Hire (acquired in Nov’17 for £69.2m). UK adjusted EBITA jumped 21% to £26.9m (95.5% of group vs 97.7% FY18) on revenues 46% higher at £175.3m (margin 15.3%).
Shareholders are set to receive a welcome boost too, with the interim dividend lifted 21% to 8.2p - payable on 11 January 2019 (ex-div Thursday 6 December). Offering a prospective yield of 3.1%, or almost twice the sector average. In terms of the balance sheet, net debt closed Sept’18 at £188.2m, up £9.0m from March (£179.2m), after absorbing £7.6m of dividend payments and £36.7m (+13%) in rental fleet capex. Debtor days in Sept’18 were steady at 58 vs 57 in March. Going forward, net debt : EBITDA is predicted to drop to 1.8x by yearend (vs 2.0x FY18) on the back of positive H2 cashflows.
Consequently we make no change to our £11.00 / share valuation, but see upside in the event either our forecasts prove to be too conservative, and/or the sector re-rates upwards - say once the fog has lifted post Brexit on the 29th March 2019.
