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Speedy Hire finds support from SMEs

The SME customer base expanded, while ROCE edged closer to its 15 per cent target
November 14, 2018

Speedy Hire (SDY) was firing on all cylinders through the first half, with hire volumes on the rise due to the growth of the group’s small-and-medium-sized-enterprise (SME) customer base. SMEs are a key focus for management – bringing benefits such as risk diversification and higher margins. And within the dominant UK and Ireland business, SME sales underpinned a 0.5 per cent uptick in like-for-like hire revenues – offsetting the blow of outsourcer Carillion’s liquidation.

IC TIP: Buy at 59p

Further down the P&L, strong cost control facilitated a 9.5 per cent rise in group cash profits to £37m. Meanwhile, reported profits benefited from the absence of any exceptional costs, against £4.7m a year earlier. That said, Speedy’s key yardstick is return on capital employed (ROCE), which increased from 9.4 per cent to 12.3 per cent – taking the group within touching distance of its 15 per cent target. Moreover, this puts the metric well ahead of its weighted-average-cost-of-capital (WACC) of 11.3 per cent – evoking the point within our tip article that “Speedy is actually creating value rather than destroying it”.

Free cash flow climbed from £11.7m to £13.8m, while net debt declined from £69.4m to £62.7m. Speedy’s robust balance sheet – fortified by careful management of its hire fleet – underpinned a considerable dividend hike.

Broker Peel Hunt forecasts adjusted pre-tax profits of £30m and EPS of 4.6p for the year to March 2019 (from £25.9m and 4p in FY2018).

SPEEDY HIRE (SDY)   
ORD PRICE:58.8pMARKET VALUE:£308m
TOUCH:58.2-59p12-MONTH HIGH:66pLOW: 47p
DIVIDEND YIELD:3.0%PE RATIO:15
NET ASSET VALUE:39pNET DEBT:31%
Half-year to 30 SepTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20171846.00.80.5
201819513.22.00.6
% change+6+120+156+20
Ex-div:13 Dec   
Payment:25 Jan