Second record breaking year in a row
​This morning, Vp plc posted another set of record results, (against a backdrop of more subdued UK building activity ahead of the EU Referendum), driving operating margins up to 15.3% from 14.0%, on the back of improved divisional mix, operational gearing and asset disposals. For the year to 31 March 2016, Vp reported an 11% improvement in profit before tax and amortisation to £29.8 million, a 14% increase in basic earnings per share, pre-amortisation, to 62.21 pence, and a 14% increase in the full year dividend, to 18.85p.
In 2015/16 the star divisional performers were: Hire Station (Tools and specialist products for industry, construction and home owners), where revenue increased 7% to £82.5m, and profits increased by 32% to £11.5 million, and UK Forks, (revenue up 10% at £20m, and profits up 30% to £5.2 million). ROACE came in at a healthy 16.3% (vs 16.2%), noticeably above the Board's stretching 15% target and double Vp's present cost of capital (CoC), which we pitch at around 8%.
The beauty of Vp's model is that it is scalable, with one of the Board's top strategic priorities being to replicate this domestic success abroad. Consequently in April, the company acquired TR Pty Ltd of Australia for A$24m (~£13.2m), with the acquisition expected to be immediately earnings enhancing. Looking ahead, more foreign M&A deals are probable, subject of course to the right quality targets being available in terms of strategic fit, product, geography and price.
Their positive momentum has continued into FY17, thanks to Vp's strong niche positions within the construction, housing and infrastructure markets (circa 83% of FY16 turnover). We have nudged up our FY17 adjusted EBITA and EPS estimates to £35.0m (from £34.8m) and 67.0p (65.5p) respectively - reflecting the positive FY16 out-turn and a slightly lower tax rate (19% vs 20%).
Our target price has increased to 760p/share, based on an 11.5x FY17 EV/EBITA multiple - representing a slight 4% premium to the industry, which we think is more than justified given Vp's superior business mix, downside resilience and attractive growth prospects.
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