Vp plc is a specialist rental business providing products and services to a diverse range of markets including civil engineering, rail, oil and gas exploration, construction, outdoor events and industry, primarily within the UK, but also overseas.
Improving conditions with more to come
The UK Construction PMI literally dropped off a cliff at the start of the Covid-19 lockdowns. But since then there has been a gradual recovery, with June’s 55.3 reading (vs 28.9 in May) being above expectations (of 47.0), and the highest for 2 years.
How is Vp performing? Well, after enduring a sharp -45% decline in April, trading has significantly improved, with revenues “now running at >80% of prior year levels”, driven by increased homebuilding, construction & infrastructure activity. An upwards trajectory that is anticipated to remain as existing projects are completed, & new ones brought on stream.
Encouragingly too, the group has generated £22m of positive cashflow over the past 3 months (>£12m in June alone) thanks to tight working capital management, deferral of VAT/rent/rates, staff furloughing and a material reduction in costs, salaries & fleet capex. With net debt closing June at £138m vs £159.8m in Mar’20.
Meaning that over 2/3rds of Vp’s furloughed employees have returned to work with many previously mothballed sites also now open. Going forward, we reckon trading should fully recover sometime in 2021. And over a 2-3 year timeframe, there is a chance that profit margins and ROCE might even be able to climb further, on the back of a leaner organisational structure.
With regards to valuation the shares at 700p appear attractively priced - equivalent to trailing FY20 multiples of 7.8x PER, 1.7x Price:Book and 4.3x EV/EBITDA. We hope to reinstate our forecasts and valuation later this year.
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