Profits down at Speedy Hire as low volumes persist

Equipment rental group Speedy Hire (SDY) appears to have tempted fate by calling its turnaround strategy “velocity”. The company’s interim results showed that it’s difficult to maintain momentum – let alone increase it – in the current economic climate.

Falling profit before tax was attributed to investments made to support the velocity initiative, as well as a more moderate performance from the group’s Kazakhstan joint venture (JV) after a successful prior year. Adjusted Ebitda fell 2.5 per cent to £46.2mn, but management pointed out that margins were maintained at 22 per cent – with shrinking revenue offset by “disciplined cost control”.

Speedy Hire generates revenue through two divisions: hire and services. Hire revenues were down 1.2 per cent in the first half despite price increases and strong demand from its national customers. This was due to a reduction in the volume of sales made to regional customers. Services fared worse – with turnover down 5.2 per cent year on year due to falling wholesale fuel prices.

Broker Peel Hunt maintained its full-year Ebitda forecast of almost £110mn following the release of Speedy’s interims, although it did reduce its pre-tax profit expectations to £30.5mn from £33.5mn. This reflects “a lower contribution from the JV, higher depreciation charges [...], prudent bad debt provisioning and higher interest costs”, said Peel Hunt analysts. 

The current calendar year also proved volatile for the group after it reported £20mn in missing hire assets back in February. An investigation later found that systemic issues with controls and accounting procedures were behind the disappearance. With a forward price/earnings multiple of just seven for FY24, Speedy’s shares reflect investor wariness. 

Cheap as this sounds, we think continued caution is warranted. Hold.

Last IC view: Hold, 31.4p, 22 June 2023