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.
06 Oct 2020
Further progress & strong cash generation
Quality firms often use a crisis as a catalyst to streamline operations and improve services: not only building in downside resilience, but also winning market share as smaller rivals struggle.
We think plant hire specialist Vp falls into this camp. Today saying that revenues had climbed from 55% of pre-Covid levels back in April, to 80% in July - and were now running at circa 85%. Not surprisingly though, the pace of recovery has softened due to recent Covid related conditions.
They have prudently said that 17 (or <7%) of its 250+ depots (120 mothballed) would close, resulting in 150 redundancies. Leading to we ‘guesstimate’ an approx one-off cash cost of between £2m-£4m, yet equally generating a similar level of annualised savings from FY22 onwards.
In H1 alone, the group generated £41m of cashflow (split +£22m Q1 & +£19m Q2) 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 Sept at £118.7m vs £159.8m in Mar’20.
All told, meaning that to us at 650p there appears to be significant potential upside for patient investors. With the shares trading on modest FY’20 multiples of 7.2x PER, 1.5x Price:Book and 3.9x EV/EBITDA.