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, but also overseas (estimated at 12% of sales).
In their H1 trading update this morning, Vp said that it had maintained its positive start to its financial year (to end March 2017) with good progress made in the majority of its markets, and that the UK division (88% of FY’17 revenues, on our forecasts) had enjoyed healthy trading within the construction and housebuilding sectors, supported by solid demand from the infrastructure markets, and is delivering good year on year growth.
Today’s statement also said that within the International division, TR Group (acquired in April 2016 for A$24m) is integrating well within the overall Group and trading in line with expectations. Chief Executive Neil Stothard concluded today’s trading update by saying “Overall the Group is trading well and we continue to anticipate making further good progress in the year”.
In our view fears of a full blown BREXIT induced recession appear misplaced, with consensus now being that the British economy should be able to weather any short term dip in activity. Consequently, even though Vp reports that the oil and gas sector remains “challenging” (6% of group sales) , we have increased our adjusted FY’17 and FY’18 PBT estimates by 1.6% to £32.7m and £34.7m respectively.
As our note confirms, Vp is currently performing towards the top end of its peer group, especially in relation to rental growth and ROCE, yet in terms of forecast P/E and yield is still very conservatively rated. As a result of our modest upgrades today, we lift our target price to 770p per share. Vp will report its interim results on 29 November.
