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Speedy Hire looks ready to grow

Speedy Hire has the potential to build on its recent recovery and an activist investor is waiting in the wings should things go awry
June 22, 2017

Equipment rental business Speedy Hire (SDY) has been under pressure since late last year, when after a disappointing run, near-20 per cent shareholder Toscafund started to campaign for the removal of non-executive chairman Jan Astrand and for a merger with rival HSS Hire (HSS). Speedy saw off the challenge, but with Toscafund still its largest shareholder, it has significant incentive to build on its recently improved performance and grow while improving returns.

IC TIP: Buy at 55p
Tip style
Income
Risk rating
High
Timescale
Long Term
Bull points
  • Moving from recovery to growth
  • Improving return on capital employed
  • Beating analyst forecasts
  • Low valuation compared with sales
Bear points
  • Competitive market
  • Profits very sensitive to changes in demand

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.

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