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%.
