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VP returns to profit on construction rebound

Equipment hire firm posts positive 2022 numbers, but customer demand may waver
VP returns to profit on construction rebound
  • Analysts fear the company could be a tough sell
  • Housebuilding slowdown could shrink profits

Heightened economic uncertainty is giving the construction industry the jitters. In May, the UK Construction Purchasing Managers’ Index (PMI) fell to a four-month low of 56.4 – marking a deceleration in the momentum that built up after the pandemic. 

In its full-year results, equipment hire firm VP (VP) was keen to emphasise that its own recovery process was largely complete. For the most part, the numbers line up with this narrative. VP returned to profit in FY 2022, after making a loss last year, thanks to demand from the UK’s housebuilding sector and the progression of large infrastructure projects, including HS2 and Hinkley Point C. This renewed interest from customers also spurred VP to increase capital investment in its rental fleet from just over £40m to £59.8m. However, it also said it had engaged in some “pre-emptive bulk purchasing” in an attempt to avoid potential supply chain difficulties. As a result, its year-end net debt rose from £121.9m to £130.6m. 

The company’s shares saw a significant uplift in late April when its chairman and majority shareholder, Jeremy Pilkington, announced he was putting the business up for sale. No potential buyers have yet been identified and broker Peel Hunt has warned that the “outright sale of the company could prove more challenging than some investors might assume”.

Peel Hunt has VP trading on 11 times forward earnings, and there remains a sale premium attached to the shares. But with the latest Construction PMI noting a slowdown in UK housebuilding, as well as lower business confidence, the company may find it is on more precarious footing than it hopes. Hold. 

Last IC View: Hold, 938p, 3 May 2022

VP (VP.)    
ORD PRICE:931pMARKET VALUE:£374mn
TOUCH:922-958p12-MONTH HIGH:1,070pLOW: 800p
DIVIDEND YIELD:3.9%PE RATIO:14
NET ASSET VALUE:415p*NET DEBT:113%
Year to 31 MarTurnover (£mn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
201830430.861.726.0
201938333.665.230.2
202036328.446.98.45
2021308-2.27-11.625.0
202235135.664.536.0
% change+14--+44
Ex-div:23 Jun   
Payment:5 Aug   
*Includes intangible assets of £62.4mn, or 155p a share