BULL POINTS:
■ Passed the trough
■ Important contract wins
■ Developing overseas
■ Trades at a discount to net assets
BEAR POINTS:
■ Weak UK construction markets
■ Public sector spending cuts
Speedy Hire's shares spiked at 1,319p before the financial crisis unfolded. Now trading at 27p, they have experienced a harsh fall. That's what happens when a company gets close to going bust, you might say. Yes, but Speedy is still the UK's market leader in renting building equipment and, after its first-half figures for 2010-11 were announced earlier this month, we think it's right to change our stance on the shares. For a long-term investor, with at least a five-year investment horizon, now looks like a good time to buy.
It bodes well for the recovery that Speedy started to show year-on-year growth in the second quarter, and in October sales were 5 per cent ahead of the same month last year. The volume of equipment out on hire in the UK, such as tools, pumps and power generation, increased 5.4 per cent in the quarter to 30 September 2010, with average hire rates up 2.8 per cent. This glimmer of revival has also meant management was confident enough to invest in new equipment as capital spending in the second quarter was £7.1m, 18 per cent up on the first quarter.
| IC TIP RATING | |
|---|---|
| Tip style | Speculative |
| Risk rating | High |
| Timescale | Long term |
| What do these mean? Find out in our | |
Granted, these numbers aren't stunning. And as Speedy's trading is largely tied to construction activity, cynics would flag up October's purchasing managers' index, which found that the sector experienced its weakest growth in eight months. What's more, although construction contributed to strong figures for the UK's output, these were eventually revised down.
| ORD PRICE: | 27p | MARKET VALUE: | £140m | |
| TOUCH: | 26-27p | 12-MONTH HIGH: | 37p | LOW: 18p |
| DIVIDEND YIELD: | 2.2% | PE RATIO: | 135 | |
| NET ASSET VALUE: | 46p | NET DEBT: | 52% | |
| Year to 31 Mar | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2007 | 336 | 36.4 | 15.9 | 4.61 |
| 2008 | 466 | 30.5 | 13.0 | 5.37 |
| 2009 | 483 | -71.1 | -29.6 | 3.47 |
| 2010 | 351 | -22.8 | -4.4 | 0.40 |
| 2011* | 362 | 1.50 | 0.2 | 0.60 |
| % change | +3 | – | – | +50 |
Normal market size: 8,000 Matched bargain trading Beta: 1.4 *KBC Peel Hunt adjusted estimates | ||||
However, Speedy is endeavouring to diversify away from construction as well as expand overseas. These moves look to be progressing well. Speedy has secured a raft of deals, including a number of infrastructure contracts. Management signed a five-year deal with Thames Water to supply tools for its investment programme; it also agreed a deal with Balfour Beatty and a three-year framework with Babcock International to support its marine and nuclear networks. Internationally, Speedy aims to build a hub in the Middle East and signed a three-year deal with Costain to supply Das Island, Abu Dhabi's oil and gas project. That's in addition to a £1m deal for a Saudi Aramco project.
For Speedy, growth overseas is vital because the outlook for the UK is at best dull. Happily, the fundamentals of the business look sound, with key operating costs of employees, property and vehicles down 6.7 per cent in the half on the same period last year. And despite a £12m turnaround in net spending on hire equipment, net debt shrank from £135m to £123m in the year to end September. Moreover, Speedy's bosses were confident enough to maintain the half-year dividend.
