Speedy Hire looks ready to grow

Management has told shareholders it plans to focus on growth, having put the foundations for this in place last year. In the 12 months to the end of March 2017, it stripped down the hire fleet by 11.4 per cent, which helped improve asset utilisation - the revenue earned compared to assets owned - by roughly 7 per cent to an average of 51.5 per cent. This, coupled with improved profitability, more than doubled return on capital employed (ROCE) from 3.2 per cent to 7.7 per cent. The company now plans to take ROCE to double digits. The group beat analyst expectations over the year and reported a strong start to 2018, leading many to a round of forecast upgrades.

While Speedy operates in highly competitive markets where it is at risk of pricing pressures, a strengthened balance sheet puts it in a good position to expand into defensive niches through acquisition and exploit a hoped-for pick-up in UK construction activity. Helped by £29.4m of asset sales, net debt fell to £71.4m at the end of March, compared with £102.6m 12 months earlier. This has left Speedy with around £75m of headroom for bolt-on acquisitions, having already bought a testing business from receivers for £3.8m late last year.

Like all hire companies, Speedy's large fixed cost base means changes in sales can result in proportionally much larger changes in profit, which means both higher potential risks as well as rewards. As the group has reduced its fleet, it has been relying on partnered services to meet demand. This entails hiring and re-renting equipment, which reduces balance sheet risk but also squeezed gross margins last year down from 58.1 per cent to 54.1 per cent. Partnered services, along with secondary revenues such as transport, fuel, training and inspection, accounted for about two-fifths of revenue.