Shares in recently listed HSS Hire (HSS) tumbled by just over a quarter on the day the tool hire specialist announced its first-half cash profits this year would be flat on 2014. Second-quarter trading was marginally below expectations, according to the group's six-month trading update. Management blamed this on weaker activity in larger client accounts and falling demand for cooling equipment. However, customer activity moved towards more usual levels in June and management expects high-single-digit organic revenue growth for the second quarter.
The group is in the middle of its branch rollout programme, which is also expected to drag on profits in the first half. So far this year it has opened 28 branches, with another 22 in progress. Another six locations are in development, to be opened in 2016. HSS has been focusing on reducing its large debt pile over the past year to support its expansion plans. This has included issuing £200m in senior secured loans as well as using part of the £103m in gross proceeds from its February IPO.
Numis Securities says...
Add. With the softness more evident in the Core Hire and HSS OneCall businesses, we assume the reduced revenues have a drop-through cash profits margin of around 25 per cent. Although June trading is returning to more normalised levels, the second quarter has been a little behind management's expectations, and we have reduced our full-year revenue and cash profit expectations by 4-5 per cent, although this equates to an 18 per cent reduction at the EPS level. We lower our price target to 200p (previously 235p) and change our recommendation from buy to add.
Canaccord says...
Hold. The company has highlighted that trading during the second quarter was below expectations due to key account weakness particularly during April and May and cooling equipment weakness during the period. Activity has picked up in June. First-half cash profits are flat year-on-year (growth was 27 per cent in the 2014 full-year), requiring 34 per cent year-on-year growth to meet our current full-year 2015 estimates. As a result we anticipate that we will be reducing estimates for the current year by 5-10 per cent with a similar reduction to our price target. Hold.
