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After a somewhat difficult couple of years it seems as though Speedy Hire (LSE: SDY) is well on the road to recovery, as last week’s full-year results showed a marked improvement in both sales and profitability. The UK’s leading provider of tools, equipment, and plant hire services, reported a very encouraging set of figures for the year to the end of March.

Improved business performance

The small-cap equipment rental firm managed to post a pre-tax profit of £14.4m for FY2017, thereby reversing last year’s substantial £57.6m loss, with revenues rising 12.2% to £369.4m, compared to the £329.1m it reported a year earlier.

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The improved performance was attributed to actions undertaken by management to identify the underlying issues that affected the group’s performance the previous year. The resulting changes have led to improved engineering efficiency, better equipment availability, and the upgrading of IT and management information systems, all of which have led to improved business performance.

In better shape

The sales force has now been structured to ensure that both large and small customers are treated alike, with management also taking steps to instil ownership and accountability at a more regional level. The group’s hire fleet has also been reduced, with utilisation rates increased, and net debt falling significantly. The business has now been stabilised and is in much better shape to create a solid platform for future growth.

Speedy Hire’s share price has performed well over the past year, gaining 38% in the last 12 months. But at 54p, it is still trading well below the highs of 82.50p achieved in early 2014. After anticipated earnings growth of 21% and 26% over the next two years, the P/E rating drops to 14.5 for FY2019, which in my view still leaves room for further share price appreciation.

UK returns to profit

Another small-cap firm that has undergone a significant turnaround in recent years is Mothercare (LSE: MTC). The leading global retailer for parents and young children is now in the third year of its turnaround programme, and yet management believes the company is still only halfway through the transformation of its brand.

Full-year results for FY2017 weren’t exactly spectacular when compared to Speedy Hire, but nevertheless after a difficult start to the year the group’s UK business recovered in the second half, returning to underlying profit for the first time in six years. International markets also showed signs of recovery with strong growth in Russia and Indonesia, along with a sales recovery in China.

Our friends in the City are expecting earnings to grow by 12% during the current year to the end of March 2018, with an even better 15% improvement pencilled-in for the following year, bringing the P/E ratio down to a very tempting 10.1 for fiscal 2019. I continue to view Mothercare as an excellent long-term recovery play.

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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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