Speedy Hire offers explanations and higher dividends

Ironically for a company called Speedy Hire (SDY), this marks the second consecutive year that the tool and equipment hire business had to delay the publication of its results for the year to 31 March. Last month, the company said that its auditor PricewaterhouseCoopers had “requested additional time to complete its internal processes in order to finalise its audit report”.

The published results offered more insight. In February, Speedy Hire revealed that £20.4mn of stock had gone missing. After an investigation, it ruled out fraud and blamed “problems with [our] controls and accounting procedures for non-itemised assets over a number of years”.

It is a startling admission. Non-itemised assets (equipment without a unique serial number) had accounted for £50mn of what it believed was £227mn in total assets. Speedy Hire said it would introduce additional counts and other measures to stop things from going missing in the future. The lost equipment, £1.4mn in legal and professional fees and £6.7mn in restructuring costs amounted to £28.5mn in exceptional costs – enough to almost completely wipe out its pre-tax profit.

The company added its auditors would "issue a limitation in scope qualification in the annual report and accounts audit opinion in relation to property, plant and equipment as they have been unable to obtain sufficient appropriate audit evidence in relation to these assets”. 

The shares were up 3 per cent on results day, suggesting that the market was encouraged by its response to the mishap, but remain far below the 43p they were trading at right before the company admitted to the loss back in February.

The market could have also been reacting to the underlying performance. Less exceptional costs, pre-tax profit is up by 4.1 per cent. That is off the back of a 13.9 per cent increase in sales: this was driven by its customer solutions division, which offers training, testing and inspection services, and which was also helped by its fuel management business benefitting from rising fuel costs.

The lost equipment has combined with an increase in net debt to take its leverage to worryingly high levels. Some £22.1mn in borrowing and lease liabilities is payable within one year, something investors should bear in mind given the lowly level of cash at the period-end, although it should be pointed out that the company does have a substantial asset-based finance facility in place that was recently extended to July 2026.

The company has upped its dividend to an attractive level given its price, suggesting it is confident about its financial position and its underlying performance. On that basis, we maintain our rating – but with a hefty note of caution around debt. Hold.

Last IC View: Hold, 40p, 15 Nov 2022