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 (88.5% FY17 sales), but also increasingly overseas (11.5%).
They have today issued another “excellent” set of results. FY'17 PBTA and EPS coming in at £34.9m (+17%) and 69.5p (+12%) respectively, with the dividend hiked up 17% to 22p on the back of 16% ROCE - once again in excess of the Board’s stretching ‘through-cycle’ goal of 15%.
Indeed, returns have far exceeded Vp’s cost of capital for some time now, reflecting market share gains and 1st class execution, underpinned by a strategy of supplying only specialist, high margin equipment for targeted verticals enjoying secular growth.
This impressive performance has been achieved without gearing up the balance sheet either, with the ratio of net debt to EBITDA holding steady at a comfortable 1.0x-1.5x. Indeed, we believe disciplined capital allocation is a key theme that is unlikely to change anytime soon, given the extensive experience of the executive team, and the careful guidance offered by the Pilkington family (50% stake).
In light of the better-than-expected outturn, allied to Vp’s positive outlook and continued compelling ROCE, growth rates and EBITA margins, we have duly lifted FY'18 PBTA by 9% to £39.0m. Moreover, at 850p the stock trades at a discount to peer averages in terms of EV/EBITA and PE multiples, whilst also paying a 2.6% dividend yield.
Based on 12x FY'18 operating profits (vs 12.8x for the sector, excluding HSS), adjusted for projected net debt and discounted back at 10%, we calculate Vp to be worth 890p per share (vs 800p previously).
