On June 10 this UK (91% sales) & International (9%) plant hire specialist posted in line results for the year ending March 2020 with adjusted PBTA at a record level of £47.1m. Adding that, although demand slowed sharply in April across some parts of the group (revenues down 20%-70%), conditions have since improved as more construction sites reopen under social distancing rules.
Moreover, even under the bleakest of scenarios - assuming a hypothetical 40% contraction in turnover (vs pre-CV19 budget levels) for the whole of FY21 - there would still be sufficient liquidity (headroom £57.3m as at 31st May’20 vs £47.7m y/e) to meet all agreed banking covenants (see full note below). Besides, Vp generated +£9.6m of cashflow anyway during April & May. More realistically, we believe UK building activity will gradually recover over the next 12-18 months. With the large national housebuilders finishing existing developments first over the summer, and breaking ground on fresh projects later in the year.
Discretionary spend has already been prudently cut, meaning that over a 2 year time horizon, there is a decent chance that profit margins and ROCE might even be able to improve on the back of a re-sized cost base. The final dividend has also been deferred and forward guidance prudently removed.
We have retracted our forecasts and valuation until there’s greater clarity surrounding coronavirus. Yet the shares at 800p appear attractively priced, trading on trailing 8.9x PER, 1.9x Price:Book and 4.9x EV/EBITDA multiples - offering upside potential for patient investors vs peer group averages.
