Vp plc is a specialist rental business providing products and services to a diverse range of markets including civil engineering, rail, oil and gas exploration, construction, outdoor events and industry, primarily within the UK, but also overseas.
29 Nov 2016
Excellent 1st half drives profit upgrades
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). Vp plc this morning produced strong interim results: H1’17 adjusted PBTA came in at £18.7m (+9%) on turnover up 16% to £121.7m, delivering EPS of 37.9p (+8%) and a 15.6% ROCE - the latter exceeding the Board’s own internal targets of 15%, and once again reinforcing the quality of the business vs rivals.
The recent surge in corporate activity around rental equipment is a function of the sector’s attractive long term prospects and healthy margins – allied to the recent 15%-20% fall in the £ vs $, which has acted as a catalyst for potential overseas buyers. The starting gun fired over the summer after news broke that activist investor Toscafund was trying (& still is) to push Speedy Hire and HSS to merge. Then, a fortnight ago Avesco agreed to be snapped up by NEP Group for £124m (or 650p/share), equivalent to prospective multiples of 15.5x EV/EBIT and 25x earnings. And finally last week Lavendon rejected an opportunistic bid from Belgium’s TVH Group, pitched at 205p/share (worth £349m), representing to a take-out price of 10.5x EV/EBIT
Vp is unlikely to be taken-over anytime soon ( as 50.26% is owned by a number of trusts connected to Executive Chairman Jeremy Pilkington), albeit we still believe the stock at 720p is favourably priced compared to peers - trading on a modest PER of 10.5x, along with offering a 2.9% dividend yield.
The UK continues to be Vp’s main profit engine, contributing 89% and 97% respectively of H1’17 revenues and EBIT - reflecting robust performances from construction, housebuilding, AMP6 water spend and infrastructure, particularly boosting Hire Station and Groundforce. Thanks to the better than expected H1 out-turn, we have upgraded FY17 PBTA estimates by 3% to £33.7m (from £32.7m), which has accordingly increased our valuation to 800p/share (from 770p) - based on a 12x CY EBITA multiple, adjusted for net debt and discounted back at 10%.