Plant and tool hire group, Speedy Hire, has produced excellent results and the outlook is good.
Plant and tool hire group Speedy Hire
(LSE: SDY)
has produced excellent results and the outlook is good. Shares are higher today and the long slump could be over.
Speedy Hire, one of the best performers on the stock market until it peaked at £13 a year ago, has slid all the way back below 700p on fears over the building sector and the declining housing market.
Those fears look to have been overdone. Admittedly, pre-tax profits are down from £36.4m to £30.5m in the year to March but that is because of £10.4m worth of integration costs, mainly from the excellent acquisition of Hewden Tools.
The integration of Hewden is now complete and is on track to deliver savings of £20m a year. Depots, vans and equipment were rebranded and a single product catalogue introduced in January with a new IT system rolled out throughout the tools division by the end of April.
Ambitious Speedy has already moved on to its next buy, taking on the accommodation business of facilities management group Carillion for £12.5m today and signing a five year partnership agreement with Carillion that will boost guaranteed revenue.
The £115m Hewden buy has helped to push turnover up by 39% to a record £465.5m but shareholders will be more impressed by the raising of the dividend total from 17p to 19.8p.
Two-thirds of Speedy's revenue comes from construction and related activities. Chairman David Wallis points to growth in infrastructure spending on energy, utilities, road and rail, hospitals, schools, social housing and the Olympics, a pretty impressive list.
The other third comes from non-construction activities in the industrial sector, where life is tougher. Wallis expects the company's share of these markets to grow strongly and he says that, as in construction, Speedy's key clients are among the largest groups and have full order books.
Speedy made three acquisitions in the past financial year but Hewden was the largest and most important, as it filled in almost all the remaining gaps in the group's geographical coverage of the UK. That enables Speedy to sign up the larger construction and industrial companies and their supply chains.
Waterford Hire, one of the smaller recent acquisitions, is important in building the brand and business in the Republic of Ireland. Together with additional greenfield openings, it will offer a springboard for future development there, Wallis says.
Investment in new equipment has produced the youngest fleet in the hire industry, with an average age of 2.4 years.
Yet despite acquisitions and investment, interest payments remain well covered by operating profit.
Institutional investors who put up £12.50 a share in a placing last June will no doubt be wary of coming in again but Speedy Hire shares appear at last to have halted the slide, gaining 7p to 688p as I write.
There has already been one false dawn this year when the shares rose from 700p to 850p in March-April and last night's close was the lowest since May 2005. There is still some risk here. However, recovery must surely come soon and in the meantime the dividend is solid.
