Van Elle (VANL) only floated on London's Alternative Investment Market (Aim) in October last year, but the ground work specialist has been trading for 30 years, in which time it has gained a 15 per cent share of this promising market in the UK and established itself in high-margin niches.
- Housebuilding and infrastructure spending set to rise
- Innovative product range
- Modest debt
- Very strong cash flow
- Unknown liability claim
- Bad weather could slow work by its clients
The list of positives attests to the business's strong position. Gross margins are currently running at 36 per cent, and in the past two years alone, operating margins have nearly doubled to 13.1 per cent. Cash conversion is strong at about 100 per cent, and despite net capital expenditure of £3.3m in the six months to October 2016, net debt was a modest £4.1m. Net proceeds of £7.4m were raised from the flotation, and this will be used to invest in additional piling rigs and people in order to meet Van Elle's traditionally busier second half. Acquisitions could also be on the cards.
The group is split into four divisions. Ground engineering products (11 per cent of forecast sales for the current year and 7 per cent of profit) saw turnover increase by 84 per cent in the first half, largely as a result of the group's Smartfoot product and its use in the vibrant housebuilding sector. This is where a pre-cast modular foundation system is assembled in a factory rather than on-site, so there is no weather-related delay. Such is the quality that bricks can be laid on to it straight away. Demand for pre-casts is also expected to accelerate following the opening of a new facility in Glasgow.
| VAN ELLE HOLDINGS (VANL) | ||||
|---|---|---|---|---|
| ORD PRICE: | 111p | MARKET VALUE: | £89m | |
| TOUCH: | 110-112p | 12-MONTH HIGH: | 139p | LOW: 99p |
| FORWARD DIVIDEND YIELD: | 3.8% | FORWARD PE RATIO: | 7 | |
| NET ASSET VALUE: | 40p | NET DEBT: | 13% | |
| Year to 30 Apr | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2014 | 46.6 | 2.9 | na | nil |
| 2015 | 73.6 | 7.0 | na | nil |
| 2016 | 84.2 | 10.7 | 12.1 | nil |
| 2017* | 97.4 | 12.3 | 13.1 | 2.6 |
| 2018* | 112.1 | 15.2 | 15.4 | 4.2 |
| % change | +15 | +24 | +18 | +62 |
Normal market size: 2,500 Market makers: 4 Beta: 1.21 *Peel Hunt forecasts, adjusted figures for PTP and EPS | ||||
Specialist piling (33 per cent of sales and half of profit) looks set to attract high levels of activity in high-margin restricted access work, where it takes specialist expertise to carry out work in confined spaces. While on-track rail work has slowed recently, business is heavily weighted towards the second half, when rail companies use the Christmas and Easter periods to carry out jobs. And the division also secured its biggest ever contract, worth £5m, in the first half.
Ground engineering services (44 per cent of sales and 38 per cent of profit) and general piling (12 per cent of sales and 5 per cent of profit) have both improved gross margins, thanks to a greater proportion of higher-margin work, although operating profits at ground engineering services were flat in the first half, reflecting increased overheads associated with the start-up of the Glasgow operation.
The shares took a hit when the interim results were announced, as only days earlier the company was informed of a possible liability related to payments due to a former employee. No further details have been made available, although analysts don't expect the issue to affect ongoing business.
