Ticker: VP. Exchange: LSE www.vpplc.com

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.    

Safe harbour amidst COVID-19 storm

Anyone who thinks that COVID-19 isn’t impacting vast swathes of the global economy, is either still in denial or cloud cuckoo land.

Therefore it is reassuring to hear a company continuing to deliver solid results, despite the considerable challenges. Today, specialist equipment rental firm Vp said that H2’20 trading had been “satisfactory.

With softness in UK construction, particularly around London & the South East (pre/post the UK General Election) – being partly offset by infrastructure & housebuilding, which “held up well”, reflecting low borrowing costs, good mortgage availability and the popular Help to Buy scheme.

As such, the Board anticipates FY20 adjusted pre-tax profits to be “marginally behind expectations (revised ED est of £47.2m vs previous consensus at £49.6m) – ending the period with a net debt of £165m (or circa 1.7x EBITDA, pre IFRS16).

What’s more, Vp has been through this type of short, sharp, economic shock before - and come out the other side in far better shape than many of its rivals. We reckon this will happen again, even if near term demand is pushed to the right by site closures, business interruption and social distancing measures.

Besides, there are other levers to pull if things were to significantly deteriorate. Not least, shrinking fleet capex (Est £60m gross in FY20), cutting discretionary spend and accelerating plant hire disposals for either under-utilised or aged equipment.

Consequently at 525p, the stock appears attractively priced, trading on trailing 5.5x PE, 1.2x Price:Book and 3.8x EV/EBITDA multiples - offering substantial potential upside vs our 860p/share valuation (vs £10.75 before).

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