The UK Construction PMI literally dropped off a cliff at the start of the Covid-19 lockdowns. But since then there has been a gradual recovery, with June’s 55.3 reading (vs 28.9 in May) being above expectations (of 47.0), and the highest for 2 years.
How is Vp performing? Well, after enduring a sharp -45% decline in April, trading has significantly improved, with revenues “now running at >80% of prior year levels”, driven by increased homebuilding, construction & infrastructure activity. An upwards trajectory that is anticipated to remain as existing projects are completed, & new ones brought on stream.
Encouragingly too, the group has generated £22m of positive cashflow over the past 3 months (>£12m in June alone) thanks to tight working capital management, deferral of VAT/rent/rates, staff furloughing and a material reduction in costs, salaries & fleet capex. With net debt closing June at £138m vs £159.8m in Mar’20.
Meaning that over 2/3rds of Vp’s furloughed employees have returned to work with many previously mothballed sites also now open. Going forward, we reckon trading should fully recover sometime in 2021. And over a 2-3 year timeframe, there is a chance that profit margins and ROCE might even be able to climb further, on the back of a leaner organisational structure.
With regards to valuation the shares at 700p appear attractively priced - equivalent to trailing FY20 multiples of 7.8x PER, 1.7x Price:Book and 4.3x EV/EBITDA. We hope to reinstate our forecasts and valuation later this year.
