Solid as a rock
Vp is a specialist rental business providing equipment and services to a wide range of markets including civil engineering, rail, oil and gas exploration, construction, outdoor events and industry, primarily (>90% FY19 sales) within the UK, but also from overseas.Today the company said in a y/e pre-close trading update that it had once again delivered another predictably “good†set of numbers, despite this year’s unusually wintery weather disrupting the broader UK construction industry. Here, the group enjoyed continued solid demand from its core infrastructure (AMP6 water, transmission & rail), construction (repair & maintenance/office fit out) and housebuilding markets - in aggregate contributing >80% revenues. Importantly too, providing a favourable backdrop for the likes of Hire Station, Groundforce and UK Forks as FY19 kicks off.
This organic growth was augmented by a couple of relatively small bolt-on UK acquisitions (Re Zenith Survey Equipment and Jackson Mechanical Services in April 2017). Although further afield the International division experienced difficult conditions in Oil/Gas which impacted Airpac Bukom, partly offset by encouraging signs in the AsiaPac test/measurement business (TR Pty).
One of the strengths of Vp is its natural balance across several specialised areas, thus enabling it to ride out most transitionary storms or mini speed-bumps. Consequently FY18 results are anticipated to be “in line with expectations†- ED PBTA at £39.2m (vs consensus £38.9m), generating adjusted EPS of 79.7p, alongside a healthy 25.2p dividend (3.0% yield).
Based on our FY19 estimates, at 825p Vp trades at an undeserved discount to the equipment hire sector, equivalent to EV/EBITDA, EV/EBIT and PER multiples of 5.3x, 9.9x and 8.8x respectively. Or in other words, far too cheap for this quality GARP stock, especially in light of its predicted current year double digit earnings growth and PEG of 0.5x.
We make no change to our forecasts or 970p/share valuation, well above current price levels - reflecting the expected step change in performance this year, thanks to the synergistic £68.8m Brandon deal (completed 7th November and cleared 7th March by the CMA) in terms of enhanced geographical spread, strategic positioning and cost savings (eg fleet capex and overhead procurement).
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