HSS Hire Group PLC Falls 35% Today… Is It A Bargain Right Now?

HSS Hire Group PLC (LON: HSS) is not cheap enough to deserve your attention, argues Alessandro Pasetti.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Interim results for tool and equipment hire group HSS Hire (LSE: HSS) pushed down its stock 35% today. 

At the end of June, when its pre-close trading update was released, I warned you: “A few elements suggest you would do well to wait a bit longer” before investing in it. Its stock plunged 26% to 134p back then, and ever since its market cap has halved — so are there any signs that this is the right time to secure a bargain deal, snapping up HSS stock at 84p a share?

Let’s delve into some of its key financial metrics. 


Results (were) in line with guidance issued in the pre-close trading update issued 29 June 2015,” the group said — so why did the shares plummet today? 

Soon after HSS warned investors two months ago, market leader Speedy Hire — whose stock fell almost 4% in early trade today — also signalled challenging trading conditions, which impacted its performance in the first half of the year.

As a result, its valuation dropped 30% to its 52-week, multi-year low of 49p on 1 July. Yet investors seem to prefer Speedy over HSS, which is still controlled by Exponent, a private equity house. 

Interim Results

On the face of it, HSS’s half-year results were not too bad, but they indicate that HSS may struggle to be profitable at the end of the year, and that is a risk you’d likely want to avoid because you are paying high multiples for its stock. Operational difficulties are a problem for its fast-rising dividends, too. 

Check this out: 

  • Revenues are up 12.1% to £146.4m (H1 14: £130.6m), with organic growth of 10.6%
  • Adjusted EBITDA is flat at £28.9m (H1 14: £28.9m), due “to plc and new branch start-up costs” 
  • Adjusted EBITA is down to £4.5m (H1 14: £11.3m) as “investment in fleet led to higher depreciation” 
  • Basic and diluted loss per share of 10.51p (H1 14: 19.61p)
  • Underlying basic and diluted loss per share of 4.45p (H1 14: 6.03p)
  • Interim dividend of 0.57p per share announced, payable in October 2015

The way it looks, Ebitda (earnings before interest, taxes, depreciation and amortisation) might come in significantly lower than the market had expected, and HSS’s stock price is adjusting accordingly. 

Losses & Covenants

Losses per share are lower year on year, but savvy investors surely have noticed that its net debt was £197.2m at the end of June, down £109.2m from £306.4m one year earlier. 

The financial covenant in place on the group’s revolving credit facility at 27 June 2015 is a minimum Ebitda of £35m on a rolling twelve month basis,” HSS says. 

Bank covenants set how much debt a borrower can keep on its books depending on certain financial metrics — Ebitda, in this instance. So, assuming annualised 2015 Ebitda of £60m — which could be lower — its implied net leverage would be above 3x. 

HSS should be safe on this basis, but I really need to check its next quarter’s performance before committing to it. I also need more clarity about the exit strategy of its owner, Exponent. 

Of course, this is a blow for the arrangers of its IPO. HSS was listed on the stock market in early 2015, when its shares were priced at the low end of the 210p-262p guidance. Then, its implied market cap was £325m. Now, its equity value is £123m. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alessandro Pasetti has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Jumbo jet preparing to take off on a runway at sunset
Investing Articles

Down 70%+ since 2020, is IAG’s share price an unmissable bargain?

IAG’s share price is still down around 73% from its pre-Covid level, but with the business performing well last year,…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

£17,000 of shares in the FTSE 100 dividend giant can make me £18,874 every year in passive income!

This FTSE 100 dividend superstar has an 8.8% yield with dividends projected to rise. It looks very undervalued to me…

Read more »

Investing Articles

2 top UK growth stocks I’m buying for my Stocks and Shares ISA in July

Looking for UK-listed growth firms to add to a Stocks and Shares ISA? Our writer highlights two he's planning to…

Read more »

artificial intelligence investing algorithms
Investing Articles

This overvalued growth stock makes Nvidia look cheap!

ARM Holdings is a growth stock that’s benefitted from the AI rally. Muhammad Cheema takes a look at whether this…

Read more »

Investing Articles

1 penny stock I’d buy today while it’s 63p

This penny stock's down 70% since last March, yet could be set for a big comeback as the firm rebuilds…

Read more »

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

Buying 8,617 Legal & General shares would give me a stunning income of £1,840 a year

Legal & General shares offer one of the highest dividend yields on the entire FTSE 100. Harvey Jones wants to…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

£25k to invest? Here’s how I’d try to turn that into a second income of £12,578 a year!

If Harvey Jones had a lump sum to invest today he'd go flat out buying top FTSE 100 second income…

Read more »

Union Jack flag in a castle shaped sandcastle on a beautiful beach in brilliant sunshine
Investing Articles

2 lesser-known dividend stocks to consider this summer

Summer is here and global markets could be heading for a period of subdued trading. But our writer thinks there…

Read more »