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VP starting to recover from Covid blow

The equipment rental specialist saw revenue drop to 55 per cent of normal levels in March
June 10, 2020

With Brexit anxiety weighing on the construction industry, followed by general election uncertainty and the arrival of Covid-19, VP (VP.) saw its revenue fall 5 per cent in the 12 months to 31 March. But the equipment rental specialist kept a tight lid on costs. As such, a 0.8 percentage point expansion in the margin to 14.3 per cent meant like-for-like adjusted operating profit held steady at £51.9m.

IC TIP: Hold at 751p

Coronavirus disruption caused revenue to drop to 55 per cent of normal levels in March. Some of VP’s UK businesses saw sales decline by as much as 70 per cent in April. But as housebuilding and general construction gradually resumes, overall revenue has rebounded to around 70 per cent of that seen pre-pandemic.

Facing softer demand last year, VP pared back capital investment in its rental fleet by over a fifth to £49m. This helped net debt (excluding lease liabilities) come down 5 per cent to £160m, equivalent to 1.6 times cash profits (Ebitda). The group had £57m of headroom on its borrowing facilities at the end of May. Limits on its lending covenants have been increased through to June 2021, accommodating a worst-case scenario where revenue falls 40 per cent short of pre-Covid-19 levels. The final dividend has been deferred until the pandemic uncertainty abates.

The Competition and Markets Authority (CMA) investigation into suspected anti-competitive behaviour in the groundworks rental market remains ongoing, with VP carrying a £4.5m provision for any potential fine.

VP (VP.)    
ORD PRICE:751pMARKET VALUE:£298m
TOUCH:749-753p12-MONTH HIGH:1,040pLOW: 499p
DIVIDEND YIELD:1.1%PE RATIO:16
NET ASSET VALUE:428p*NET DEBT:136%**
Year to 31 MarTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201620927.557.518.9
201724930.360.322.0
201830430.861.726.0
201938333.665.230.2
202036328.446.98.45
% change-5-16-28-72
Ex-div:na   
Payment:na   
*Includes intangible assets of £74m, or 187p a share **Includes £72m in lease liabilities