Vp

www.vpplc.com
Ticker: VP. Exchange: FTSE

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.    

Latest Reports

Further progress & strong cash generation

Published: 6th October 2020

Quality firms often use a crisis as a catalyst to streamline operations and improve services: not only building in downside resilience, but also winning market share as smaller rivals struggle.

We think plant hire specialist Vp falls into this camp. Today saying that revenues had climbed from 55% of pre-Covid levels back in April, to 80% in July - and were now running at circa 85%. Not surprisingly though, the pace of recovery has softened due to recent Covid related conditions.

They have prudently said that 17 (or <7%) of its 250+ depots (120 mothballed) would close, resulting in 150 redundancies. Leading to we ‘guesstimate’ an approx one-off cash cost of between £2m-£4m, yet equally generating a similar level of annualised savings from FY22 onwards.

In H1 alone, the group generated £41m of cashflow (split +£22m Q1 & +£19m Q2) 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 Sept at £118.7m vs £159.8m in Mar’20.

All told, meaning that to us at 650p there appears to be significant potential upside for patient investors. With the shares trading on modest FY’20 multiples of 7.2x PER, 1.5x Price:Book and 3.9x EV/EBITDA.

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Improving conditions with more to come

Published: 23rd July 2020

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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Chance to emerge from CV-19 even stronger

Published: 10th June 2020

On June 10 this UK (91% sales) & International (9%) plant hire specialist posted in line results for the year ending March 2020 with adjusted PBTA at a record level of £47.1m. Adding that, although demand slowed sharply in April across some parts of the group (revenues down 20%-70%), conditions have since improved as more construction sites reopen under social distancing rules.

Moreover, even under the bleakest of scenarios - assuming a hypothetical 40% contraction in turnover (vs pre-CV19 budget levels) for the whole of FY21 - there would still be sufficient liquidity (headroom £57.3m as at 31st May’20 vs £47.7m y/e) to meet all agreed banking covenants (see full note below). Besides, Vp generated +£9.6m of cashflow anyway during April & May. More realistically, we believe UK building activity will gradually recover over the next 12-18 months. With the large national housebuilders finishing existing developments first over the summer, and breaking ground on fresh projects later in the year.

Discretionary spend has already been prudently cut, meaning that over a 2 year time horizon, there is a decent chance that profit margins and ROCE might even be able to improve on the back of a re-sized cost base. The final dividend has also been deferred and forward guidance prudently removed.

We have retracted our forecasts and valuation until there’s greater clarity surrounding coronavirus. Yet the shares at 800p appear attractively priced, trading on trailing 8.9x PER, 1.9x Price:Book and 4.9x EV/EBITDA multiples - offering upside potential for patient investors vs peer group averages.

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Safe harbour amidst COVID-19 storm

Published: 25th March 2020

Anyone who thinks that COVID-19 isn’t impacting vast swathes of the global economy, is either still in denial or cloud cuckoo land.

Therefore it is reassuring to hear a company continuing to deliver solid results, despite the considerable challenges. Today, specialist equipment rental firm Vp said that H2’20 trading had been “satisfactory.

With softness in UK construction, particularly around London & the South East (pre/post the UK General Election) – being partly offset by infrastructure & housebuilding, which “held up well”, reflecting low borrowing costs, good mortgage availability and the popular Help to Buy scheme.

As such, the Board anticipates FY20 adjusted pre-tax profits to be “marginally behind expectations (revised ED est of £47.2m vs previous consensus at £49.6m) – ending the period with a net debt of £165m (or circa 1.7x EBITDA, pre IFRS16).

What’s more, Vp has been through this type of short, sharp, economic shock before - and come out the other side in far better shape than many of its rivals. We reckon this will happen again, even if near term demand is pushed to the right by site closures, business interruption and social distancing measures.

Besides, there are other levers to pull if things were to significantly deteriorate. Not least, shrinking fleet capex (Est £60m gross in FY20), cutting discretionary spend and accelerating plant hire disposals for either under-utilised or aged equipment.

Consequently at 525p, the stock appears attractively priced, trading on trailing 5.5x PE, 1.2x Price:Book and 3.8x EV/EBITDA multiples - offering substantial potential upside vs our 860p/share valuation (vs £10.75 before).

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An ideal stocking filler for patient investors

Published: 4th December 2019
What do UK investors most want for Xmas? Well given the angst from the US/China trade spat, UK General Election and Brexit ‘limbo’, we suspect greater clarity would be towards the top of Santa’s list.

The good news is that we think much of this uncertainty could be resolved over the next few months. Providing not only a welcome boost to capital investment, but also a lift to specialist plant hire firms like Vp - who this morning posted resilient 1st half figures, and said they were on track to deliver FY20 expectations (ED Est: PBTA £49.6m).

Here H1’20 adjusted EBITDA, PBTA, EPS (pre IFRS 16) and ROCE all came in flat YoY at £51.8m (+0.4%), £25.9m (+0.3%), 52.5p (+0.2%) & 14.5% respectively, despite strong comparatives and turnover easing -3.4% to £186.6m. The latter reflecting softer conditions in commercial construction & civil engineering (eg London & the South East) - exacerbated too by completion of the 5-year Water (AMP 6) & Rail (CP5) programs.

Albeit equally offset by higher EBIT margins (15.2% vs 14.6% LY) thanks to Brandon synergies, tight cost control and improving demand at Airpac Bukom (oil & gas), where new fleet has been ordered. Highlighting Vp’s downside resilience, differentiated service offering and focus on specialist equipment
With regards to valuation, we calculate the shares to be worth £10.75 each – potentially offering >20% upside to patient investors – and see real upside in the event there is an industry wide upswing (re ‘mini Boris Boom’) once the Brexit induced logjam has cleared. 
At 890p, the stock trades on EV/EBITDA, EV/EBIT and PER multiples of 5.0x, 9.6x and 9.0x, equivalent to a 10%-30% discount vs the equipment rental sector.

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On track to hit FY20 expectations

Published: 30th September 2019

The holy grail for corporates is to create a sustainable edge that produces superior returns over the long term, and whose advantage is not eroded by time or competition. We think specialist plant hire firm Vp, with its strong niche positions, has achieved this. What’s more at 810p, its shares today trade at an historically low 8.0x PER, whilst also paying a 4.0% yield.

Sure there are some macro headwinds, such as Brexit, lackluster global growth and US vs China trade wars. Yet equally the company is performing well, as illustrated again this morning. Here the group said that FY20 was on track to hit expectations. UK infrastructure spend is “holding up well”, whilst housebuilding remains stable, due to near-record levels of employment, low borrowing costs, good mortgage availability and the popular Help to Buy scheme. Partly offset by softness in general construction, particularly centred on London and the South East

Elsewhere, the £69.2m acquisition of Brandon Hire in Nov’17 has been successfully integrated with Hire Station. Some of the synergies will be realised later, albeit we estimate the deal should ultimately deliver c.£4m of annualised savings, related to procurement/cost improvements, economies of scale and greater asset/inventory utilisation. In turn, boosting the original RoI from 8.7% to >14% - materially above Vp’s ‘through cycle’ cost of capital

Lastly, despite experiencing a “softer start to FY20” than anticipated, Vp’s International division has recently enjoyed an uptick in activity levels across petrochemical and test & measurement. All told, we reiterate our adjusted FY20 PBT forecast of £49.6m and 1,075p/share valuation – offering 33% upside to patient investors.

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Brandon acquisition was a masterstroke

Published: 4th June 2019
Buying low and selling high is the dream of most stock pickers. The difficult bit is finding quality names sporting ‘wide moats’, run by capable management and trading at prices significantly below their intrinsic worth. That said, just occasionally the market delivers up gifts to sharp-eyed investors. 

Enter Vp, a specialist tool hire business, whose shares have fallen >25% over the past 2 months on the back of macro fears and a Competitions (CMA) investigation related to its Groundforce unit. Nevertheless, despite the UK economic miasma, otherwise known as Brexit, the company’s core UK construction, infrastructure and housebuilding units are still trading well. And whilst the CMA enquiry is undoubtedly something to watch, we suspect it also won’t ultimately end up being material in the context of the Group’s £293m market cap. 

In terms of the numbers, FY19 revenues, adjusted EBITDA, PBTA, EPS and the dividend all climbed to record levels of £382.8m (+26%), £101.3m (+20%), £46.8m (+15%), 95.1p (+16%) and 30.2p (+16%) respectively. Sure ROCE dropped slightly to 14.5% (vs 14.8% LY), yet this was simply a function of owning Brandon Hire for a full 12 months.

Likewise costs and cashflow are being carefully managed, with net debt declining to £168.1m (vs £179.2m LY) - equivalent to a comfortable EBITDA multiple of 1.7x and falling to 1.6x 12 months’ later (see below) - even after investing £63.8m on fleet capex, offset by £20m (£18.5m LY) of equipment disposals.

Looking ahead, we have retained our FY20 PBT forecasts and £11.50/share valuation – offering potentially >55% upside. What’s more, the stock at 730p appears substantially undervalued on just about all metrics, particularly given its strong cash generation and robust balance sheet.

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Record results & 'well ahead of last year'

Published: 8th April 2019
Politicians could learn a lot from successful UK corporates, who are having to navigate through this self-induced Brexit chaos. Take equipment rental specialist, Vp. Clearly the core UK tool hire operation is not totally immune to what’s happening externally. That said, at this stage the group continues to compensate for the uncertainty via experienced leadership, excellent teamwork and thorough contingency planning.

Indeed this morning in a FY19 trading update, the firm said that revenues, adjusted PBT (ED est. +15.8% to £47.0m) and EPS (+17.4% to 96p) were all “well ahead of last year and in line with expectations”. Driven by “stable demand from its core infrastructure, construction and housebuilding” sectors – further boosted by synergies from the £69.2m purchase of Brandon Hire in Nov’17. In fact once fully integrated (est Sept’19), we reckon this acquisition should achieve a 15% ROI, equating to >£4m of annualised savings. 

Elsewhere, Airpac Bukom continued to experience “challenging” conditions in offshore oil and gas, although this was more than offset by robust results from TR, the test & measurement business in AsiaPac. 
 
Consequently bearing all this in mind, we make no change to our forecasts, but lift the valuation to £11.50/share (from £11.00) based on the natural roll-forward of the discount rate.

In our view, Vp is undervalued in absolute terms, particularly considering its superior mix of specialist assets, high ROCE, efficient operations, earnings quality and downside resilience. 

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When running winners makes sense

Published: 27th September 2018
Vp is a specialist rental business providing equipment and services to a wide range of markets including civil engineering, rail, oil/gas exploration, construction, outdoor events and industry, primarily within the UK, but also from overseas.

How is Vp performing? Well we were once again delighted to hear this morning that it continues to “make good progress” thanks to solid demand in the UK infrastructure, housebuilding & construction sectors. Particularly benefitting the likes of Hire Station, UK Forks and Groundforce.

Elsewhere, the integration of Brandon Hire is progressing to plan and “performing to expectations”.  Whilst internationally (c. 9% revenues), the oil & gas division, Airpac Bukom, is experiencing a “modest upturn” on the back of a gradual recovery in crude prices (today Brent >$80/barrel). Augmented by a “positive H1’19” for Australasian test & measurement specialist, TR Group.

Consequently, overall the group is on track to hit our FY19 expectations – with the stock rated at 6.4x EV/EBITDA, broadly in line with peers. We make no change to our numbers, or £11.00/share valuation.

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Business is humming

Published: 27th November 2018
Vp is a specialist rental business providing equipment and services to a wide range of markets including civil engineering, rail, oil/gas exploration, construction, outdoor events and industry, primarily within the UK, but also from overseas.

Despite Brexit dominating headlines, grass roots demand remains robust, especially across new build housing and infrastructure. And only 3 weeks ago the Office for National Statistics said the construction industry had enjoyed an ‘Indian summer’, with Q3 output expanding at a 2.1% clip, after experiencing a -1.6% Q1 decline (cold winter) and a 0.8% rebound in Q2 (wet spring). 

Likewise, Vp is showing few signs of a slowing-down: this morning reporting “another excellent set of results with revenues, profits and EPS all significantly ahead”. H1’19 turnover, adjusted PBTA, EPS and dividends all climbed by double-digits to £193.2m (+42%, Est LFL 13%), £25.9m (+22%), 52.3p (+18%) and 8.2p (+21%) respectively. Beating our H1 PBTA estimates by 3%, and providing a comfortable cushion in the event of a future hard-Brexit. 

Divisionally, trading at Torrent Trackside (£48bn CP6 rail), TPA (transmission) and Groundforce (AMP6, water infrastructure) was strong, augmented by supportive conditions at Hire Station, UK Forks and Brandon Hire (acquired in Nov’17 for £69.2m). UK adjusted EBITA jumped 21% to £26.9m (95.5% of group vs 97.7% FY18) on revenues 46% higher at £175.3m (margin 15.3%). 

Shareholders are set to receive a welcome boost too, with the interim dividend lifted 21% to 8.2p - payable on 11 January 2019 (ex-div Thursday 6 December). Offering a prospective yield of 3.1%, or almost twice the sector average. In terms of the balance sheet, net debt closed Sept’18 at £188.2m, up £9.0m from March (£179.2m), after absorbing £7.6m of dividend payments and £36.7m (+13%) in rental fleet capex. Debtor days in Sept’18 were steady at 58 vs 57 in March. Going forward, net debt : EBITDA is predicted to drop to 1.8x by yearend (vs 2.0x FY18) on the back of positive H2 cashflows.

Consequently we make no change to our £11.00 / share valuation, but see upside in the event either our forecasts prove to be too conservative, and/or the sector re-rates upwards - say once the fog has lifted post Brexit on the 29th March 2019. 




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On track for another year of progress

Published: 2nd August 2018
House prices are almost as British as fish & chips. Hardly surprising really, given in total residential property is worth a staggering £7.1 trillion (source: Savills), or >4x GDP. So what’s the latest word on the street? Well despite being buffeted in Q1’18 by the country’s other favourite topic, the weather – the recent outlook from the nation’s housebuilders appears to be positive. The UK construction industry rebounded 2.9% in May, led by ‘new build homes’ which were up 8.4% on LFL terms. 

Going forward, we expect activity levels to remain supportive - albeit slightly less so in central London, which has greater BREXIT exposure and much higher property values.  This positive outlook underpins our forecasts for specialist plant hire group Vp, who released an upbeat trading statement this morning ahead of its AGM. 

Here, the company has enjoyed an encouraging 1st four months, with its core UK infrastructure, housebuilding & construction markets demonstrating solid demand. The integration of Brandon Hire is also progressing to plan. 

Elsewhere, there has been a “modest recovery” in the overseas oil & gas business (Airpac Bukom) reflecting improved crude prices, allied to good trading at the AsiaPac test & measurement operation.

Consequently, we make no change to our numbers, but nudge up the valuation to £11.00/share from £10.70 - based on a 12x EV/EBIT multiple, which is consistent with sector EV/EBITDA averages of 6.4x.

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Beats on both top and bottom lines

Published: 4th June 2018
Vp is a specialist rental business providing equipment and services to a wide range of markets including civil engineering, rail, oil/gas exploration, construction, outdoor events and industry, primarily within the UK, but also from overseas.              

The UK construction industry ploughs ahead unabated. Building the 100ks of new homes the country desperately needs, together with updating often capacity constrained & dilapidated infrastructure (eg rail, power, water, airports, etc). Secular trends that should endure irrespective of Brexit. Indeed the Construction Products Association (CPA) reckon that despite a weak Q1’18 (-2.7%), UK building output will expand on average at 1.0% for the following 3 quarters (0.1% FY), before accelerating to 2.7% and 1.9% in 2019 and 2020.

So we remain confident that Vp will continue to outperform over the cycle. Indeed the firm’s ‘tried & tested’ approach of focusing on renting specialist equipment, complemented by flawless execution and synergistic M&A - enabled it to post exemplary results once again this morning. FY18 revenues, adjusted PBT, EPS and dividends all climbed to £303.6m (+22.1%), £40.6m (+16%, ED £39.2m), 81.8p (+18%) and 26p (+18%) respectively. Propelled by an “excellent” performance in the UK, where EBIT rose 20% to £43m – representing almost 98% (95% LY) of the business – on revenues 24% up at £272.0m (margin 15.8%). 

Furthermore from a macro perspective, the leading operators seem to be expanding faster than the pack. Here the top 5 groups, who possess an approx 31% share, generate greater economies of scale. Enabling them to not only invest in the latest equipment/technology (eg remote diagnostic, safety enhancements), but also provide 24-7 national, same-day breakdown cover.

A 2-pronged strategy which paid off handsomely in FY18, as Vp was able to purchase Brandon Hire in November for £68.8m (biggest ever acquisition) at reasonable 2016 EV/EBITDA, EV/EBIT and EV/Book (debt/cash free) multiples of 5.6x, 11.5x and 1.9x.

At 940p, investors can access this double digit growth at a current year (CY) PEG of 0.6x. Indeed we have nudged up both our forecasts and valuation to 1,070p/share (vs 970p before) – on the back of the “outstanding” FY18 out-turn and enhanced competitive position within tool hire. 

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Solid as a rock

Published: 5th April 2018
Vp is a specialist rental business providing equipment and services to a wide range of markets including civil engineering, rail, oil and gas exploration, construction, outdoor events and industry, primarily (>90% FY19 sales) within the UK, but also from overseas.                                                      

Today the company said in a y/e pre-close trading update that it had once again delivered another predictably “good” set of numbers, despite this year’s unusually wintery weather disrupting the broader UK construction industry. Here, the group enjoyed continued solid demand from its core infrastructure (AMP6 water, transmission & rail), construction (repair & maintenance/office fit out) and housebuilding markets - in aggregate contributing >80% revenues. Importantly too, providing a favourable backdrop for the likes of Hire Station, Groundforce and UK Forks as FY19 kicks off.

This organic growth was augmented by a couple of relatively small bolt-on UK acquisitions (Re Zenith Survey Equipment and Jackson Mechanical Services  in April 2017). Although further afield the International division experienced difficult conditions in Oil/Gas which impacted Airpac Bukom, partly offset by encouraging signs in the AsiaPac test/measurement business (TR Pty).

One of the strengths of Vp is its natural balance across several specialised areas, thus enabling it to ride out most transitionary storms or mini speed-bumps. Consequently FY18 results are anticipated to be “in line with expectations” - ED PBTA at £39.2m (vs consensus £38.9m), generating adjusted EPS of 79.7p, alongside a healthy 25.2p dividend (3.0% yield). 

Based on our FY19 estimates, at 825p Vp trades at an undeserved discount to the equipment hire sector, equivalent to EV/EBITDA, EV/EBIT and PER multiples of 5.3x, 9.9x and 8.8x respectively. Or in other words, far too cheap for this quality GARP stock, especially in light of its predicted current year double digit earnings growth and PEG of 0.5x.

We make no change to our forecasts or 970p/share valuation, well above current price levels - reflecting the expected step change in performance this year, thanks to the synergistic £68.8m Brandon deal (completed 7th November and cleared 7th March by the CMA) in terms of enhanced geographical spread, strategic positioning and cost savings (eg fleet capex and overhead procurement).
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Record H1 & strategic £68.8m acquisition of Brandon Hire

Published: 21st November 2017
Vp is a specialist rental business providing equipment and services to a wide range of markets including civil engineering, rail, oil and gas exploration, construction, outdoor events and industry, primarily (>90% FY19 sales) within the UK, but also from overseas.

Encouragingly, the existing business continues to bang out “excellent” numbers, such as today’s interims. Here, headline adjusted PBTA came in at £21.1m up 13% (vs £18.7m LY) on turnover 12% higher to £136m (£121.7m) - delivering EPS of 44.2p (+17%), 16% ROCE and a 6.8p dividend (+13%). Divisionally, the UK continues to be the standout performer, contributing 88% and 94% respectively of H1’18 revenues and EBIT - reflecting robust performances from construction, housebuilding, AMP6 water spend and infrastructure, particularly boosting Hire Station and Groundforce.

The trick to successful M&A is knowing the target inside-out, not over-paying and then integrating flawlessly to deliver the desired synergies. To us, on all of these fronts, Vp’s canny £68.8m purchase of Brandon Hire (924 FTEs) on 7th November (from private equity house, Rutland Partners) scores highly.

The price is attractive, equivalent to 2016 EV/EBITDA, EV/EBIT and EV/Book (debt/cash free) multiples of 5.6x, 11.5x and 1.9x – representing a discount to the sector and offering an immediate 8.7% Return on Investment (RoI, pre-integration). Although Brandon is not anticipated to make a material contribution to profits in FY18, we reckon there is plenty of scope to lift EBIT margins from 7.5% to >10% in due course, thanks to: cost/procurement savings, synergies, economies of scale and improved asset/inventory utilisation.

Strategically too, the deal looks a neat cultural, geographic and customer fit with Vp’s Hire Station (HS) unit. Indeed, with a branch network of 143 (typically smaller) sites, Brandon is a national operator servicing circa 20,000 SMEs, with regional ties to the South West, Wales and in/around towns.

Better still, the transaction should be strongly earnings accretive, with our FY19 adjusted EPS forecast climbing 17% from 78.3p to 93.3p. Similarly pushing up our valuation to 970p/share (vs 890p), equivalent to circa 11x and 6x next year’s EBITA and EBITDA for the enlarged group.

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On track for further profitable growth

Published: 29th September 2017
Vp is a specialist rental business providing equipment and services to a wide range of markets including civil engineering, rail, oil and gas exploration, construction, outdoor events and industry, primarily within the UK (88.5% FY17 sales), but also increasingly overseas (11.5%).

If looking for a solid, dependable and well diversified plant-hire specialist, then perhaps look no further than Vp, who navigated the last downturn with real aplomb. 

It said yesterday that trading for the first 5 months had been “positive” and consistent “with full year expectations”. An impressive performance, especially given macro concerns over BREXIT, a potentially slowing UK economy, a moribund crude price and unsupportive global geopolitics.

In the UK, “healthy demand” continues to be experienced in infrastructure, construction and housebuilding, augmented by April’s acquisitions of Zenith Survey Equipment (£6.15m) and Jackson Mechanical Services (£3.6). Encouragingly too, the overseas oil/gas division (Airpac Bukom) has also seen stabilisation return in AsiaPac.

As such, we make no change to our forecasts or 890p/share valuation, and look forward to hearing more at the interims on 21 November 2017. Longer term, construction of the UK’s new nuclear reactor at Hinkley Point (£17.6bn), a 3rd runway at Heathrow (£17.8m), HS2 (£55.7bn), London’s super-sewer and Crossrail 2 should all prove supportive too.

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Making all the right moves

Published: 6th June 2017
Vp is a specialist rental business providing equipment and services to a wide range of markets including civil engineering, rail, oil and gas exploration, construction, outdoor events and industry, primarily within the UK (88.5% FY17 sales), but also increasingly overseas (11.5%).

They have today issued another “excellent” set of results. FY'17 PBTA and EPS coming in at £34.9m (+17%) and 69.5p (+12%) respectively, with the dividend hiked up 17% to 22p on the back of 16% ROCE - once again in excess of the Board’s stretching ‘through-cycle’ goal of 15%. 

Indeed, returns have far exceeded Vp’s cost of capital for some time now, reflecting market share gains and 1st class execution, underpinned by a strategy of supplying only specialist, high margin equipment for targeted verticals enjoying secular growth.

This impressive performance has been achieved without gearing up the balance sheet either, with the ratio of net debt to EBITDA holding steady at a comfortable 1.0x-1.5x. Indeed, we believe disciplined capital allocation is a key theme that is unlikely to change anytime soon, given the extensive experience of the executive team, and the careful guidance offered by the Pilkington family (50% stake). 

In light of the better-than-expected outturn, allied to Vp’s positive outlook and continued compelling ROCE, growth rates and EBITA margins, we have duly lifted FY'18 PBTA by 9% to £39.0m. Moreover, at 850p the stock trades at a discount to peer averages in terms of EV/EBITA and PE multiples, whilst also paying a 2.6% dividend yield. 

Based on 12x FY'18 operating profits (vs 12.8x for the sector, excluding HSS), adjusted for projected net debt and discounted back at 10%, we calculate Vp to be worth 890p per share (vs 800p previously).

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Excellent 1st half drives profit upgrades

Published: 29th November 2016
Vp is a specialist rental business providing equipment and services to a wide range of markets including civil engineering, rail, oil and gas exploration, construction, outdoor events and industry, primarily within the UK, but also overseas (Estimated at 12% of sales).  Vp plc this morning produced strong interim results: H1’17 adjusted PBTA came in at £18.7m (+9%) on turnover up 16% to £121.7m, delivering EPS of 37.9p (+8%) and a 15.6% ROCE - the latter exceeding the Board’s own internal targets of 15%, and once again reinforcing the quality of the business vs rivals.

The recent surge in corporate activity around rental equipment is a function of the sector’s attractive long term prospects and healthy margins – allied to the recent 15%-20% fall in the £ vs $, which has acted as a catalyst for potential overseas buyers. The starting gun fired over the summer after news broke that activist investor Toscafund was trying (& still is) to push Speedy Hire and HSS to merge. Then, a fortnight ago Avesco agreed to be snapped up by NEP Group for £124m (or 650p/share), equivalent to prospective multiples of 15.5x EV/EBIT and 25x earnings. And finally last week Lavendon rejected an opportunistic bid from Belgium’s TVH Group, pitched at 205p/share (worth £349m), representing to a take-out price of 10.5x EV/EBIT

Vp is unlikely to be taken-over anytime soon ( as 50.26% is owned by a number of trusts connected to Executive Chairman Jeremy Pilkington), albeit we still believe the stock at 720p is favourably priced compared to peers  - trading on a modest PER of 10.5x, along with offering a 2.9% dividend yield.

The UK continues to be Vp’s main profit engine, contributing 89% and 97% respectively of H1’17 revenues and EBIT - reflecting robust performances from construction, housebuilding, AMP6 water spend and infrastructure, particularly boosting Hire Station and Groundforce. Thanks to the better than expected H1 out-turn, we have upgraded FY17 PBTA estimates by 3% to £33.7m (from £32.7m), which has accordingly increased our valuation to 800p/share (from 770p) - based on a 12x CY EBITA multiple, adjusted for net debt and discounted back at 10%.

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Vp - Equity Development Investor Forum, September 2016

Published: 29th September 2016
Neil Stothard, Chief Executive, explains to investors the opportunities for the business.

Trading slightly ahead of expectations

Published: 28th September 2016

Vp is a specialist rental business providing equipment and services to a wide range of markets including civil engineering, rail, oil and gas exploration, construction, outdoor events and industry, primarily within the UK, but also overseas (estimated at 12% of sales).

In their H1 trading update this morning, Vp said that it had maintained its positive start to its financial year (to end March 2017) with good progress made in the majority of its markets, and that the UK division (88% of FY’17 revenues, on our forecasts) had enjoyed healthy trading within the construction and housebuilding sectors, supported by solid demand from the infrastructure markets, and is delivering good year on year growth. 

Today’s statement also said that within the International division, TR Group (acquired in April 2016 for A$24m) is integrating well within the overall Group and trading in line with expectations. Chief Executive Neil Stothard concluded today’s trading update by saying “Overall the Group is trading well and we continue to anticipate making further good progress in the year”.  

In our view fears of a full blown BREXIT induced recession appear misplaced, with consensus now being that the British economy should be able to weather any short term dip in activity. Consequently, even though Vp reports that the oil and gas sector remains “challenging” (6% of group sales) , we have increased our adjusted FY’17 and FY’18 PBT estimates by 1.6% to £32.7m and £34.7m respectively. 

As our note confirms, Vp is currently performing towards the top end of its peer group, especially in relation to rental growth and ROCE, yet in terms of forecast P/E and yield is still very conservatively rated. As a result of our modest upgrades today, we lift our target price to 770p per share. Vp will report its interim results on 29 November.

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'Positive start' to the year, even post Brexit

Published: 27th July 2016

Vp is a specialist rental business providing equipment and services to a wide range of markets including civil engineering, rail, oil and gas exploration, construction, outdoor events and industry, primarily within the UK, but also overseas (Estimated at 12% of sales).

Is Britain at risk of talking itself into a recession? Following last month's EU Referendum, the media has been awash with predictions of a collapse in house prices and business confidence. Sure, there is likely to be some form of temporary impact, especially in prime central London property - but with UK assets now circa 10% cheaper for foreign investors thanks to Sterling's recent devaluation and interest rates nailed at 0.5%, then we just don't see a prolonged slump in demand.

Furthermore, quality firms like Vp, delivering niche services into the infrastructure and construction sectors, are still ticking along nicely. Indeed yesterday the company said in a brief trading update that it had experienced no noticeable slowdown since the BREXIT vote and was on track to meet FY17 expectations.

As such, we reiterate our FY17 adjusted EBITA and EPS estimates of £35m and 67p respectively, along with the 760p/share price target. Additionally at 675p, we think the stock looks cheap, representing a near 10% discount to peer EV/EBITA multiples. This seems unwarranted given Vp's healthy capital returns, downside resilience, strong balance sheet and attractive growth prospects. 


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Second record breaking year in a row

Published: 7th June 2016

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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A$24m (£13.2m) Australian acquisition

Published: 20th April 2016
Vp plc has today announced the acquisition of TR Pty Ltd for a cash consideration of A$17.4 million payable on completion,  and assumed net debt of A$6.6 million. In recent years Vp has made strong progress based mainly on its operations within the UK.  Today's acquisition is a major step forward in increasing the Group's overseas presence.

TR is engaged in the specialist rental of test & measurement, communications, and audio visual equipment in Australia, New Zealand and Malaysia.  TR is the market leader in technical equipment rental and calibration in Australia.  The business was founded in 1974 and operates from 13 locations with a head office in Melbourne, Australia. In the year to 30 June 2015, revenues were A$33.0 million generating pre tax profits of A$3.0 million.

Vp has built up an excellent track record of finding & successfully integrating (earnings accretive) acquisitions in the last few years. Strategically we think the TR acquisition is an excellent fit with Vp's existing interests, and has been concluded at an attractive price (approx. 6.6x EBITA vs 10.8x peers).  The transaction should be earnings enhancing from day 1, and we have increased our FY17 EBITA and adjusted EPS estimates by 5.5% and 4.5%, to £34.8m and 65.5p respectively. Our Price Target moves up by 3% to 746p/share.

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Trading in line with expectations

Published: 1st March 2016
Yesterday Vp plc announced the acquisition of Higher Access Ltd, (the UK leader in hiring out niche tracked access platforms, operating from two sites in Burnley and Luton) for £4.1 million. The business will become a subsidiary of Vp's UK Forks division. Vp also confirmed that it had "experienced a satisfactory winter period", and that it is on track to deliver full year results (for the year ending 31 March) in line with current market expectations.

Vp has an excellent record in recent years of making very successfull (and earnings enhancing) bolt on acquisitions, which, in almost every case, they had been tracking for a long time prior to purchase.  We anticipate that Higher  Access will continue this trend.

EV/EBITA multiples across the wider equipment rental sector have declined by around 10% since Vp's interims were released on 25th November. We continue to believe that Vp deserves a premium rating, reflecting its predictable earnings, healthy ROCE and operational breath - albeit we have nonetheless conservatively reset our price target from 800p to 725p/share, reflecting the overall sector (and market) derating. 

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Another record year

Published: 7th April 2017
Vp is a specialist rental business providing equipment and services to a wide range of markets including civil engineering, rail, oil and gas exploration, construction, outdoor events and industry, primarily within the UK, but also overseas (Estimated at 12% of sales).

Quality stocks seem to consistently outperform their peers through both ‘thick and thin’ - and for specialist equipment hire business Vp, this certainly seems to be the case. You see, during the 2008-9 financial crisis the company’s downside resilience helped it cope admirably amid some of the toughest conditions in living memory – while many of its rivals only escaped bankruptcy by the skin of their teeth.

Indeed this morning there is another encouraging pre-close update saying results for the y/e March 2017 would be “in line with current market expectations”, after “positive” winter trading (re mild weather supporting UK building activity).Here, we think that the group continued to experience robust demand in H2 across its Ground Force, Hire Station and UK Forks divisions, along with not being unduly affected (re Torrent Trackside) by recent construction delays at Network Rail which has temporarily impacted the likes of Van Elle’s specialist piling operations.

Furthermore, the Board also announced the £3.6m acquisition of Jackson Mechanical Services (UK) Limited, which operates from Harpenden/Leeds and will be integrated within Hire Station. This appears to be another a sensible bolt-on deal and should prove to be earnings accretive in year 1.

We make no change to our FY 17–18 PBT estimates of £33.7m and £35.8m respectively, and await full details of the transaction at the prelims in June. In terms of valuation, the stock at 800p continues to rate as good value trading on EV/EBITDA, EV/EBIT and PER multiples of 6.2x, 11.7x and 11.7x - whilst delivering better than sector average ROCE and offering a 2.6% dividend yield.

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Profitable growth with downside resilience

Published: 24th July 2019
Investors look for many things in quality stocks. One key part of the mix is the ability to expand profitably even in choppy waters. We think Vp, an equipment rental specialist, fits the bill as evidenced by its 14.5% ROCE and enviable track record.
Today the company said that it continues to “make progress”. Adding that “YTD trading had been broadly in line with expectations” - supported by its core UK infrastructure, construction and housebuilding activities, particularly outside of the ‘more subdued’ South East and London areas. Similarly, the International division (re oil & gas and test & measurement) has also experienced a “satisfactory” first 4 months.
As such, we make no changes to our forecasts, but conservatively nudge down the valuation from £11.50 to £10.75/share – reflecting a near 10% de-rating across the plant hire sector over the past 2 months. That said, at 830p the shares offer canny investors attractive long-term value, trading at an unjustified discount to peers.
What’s more, despite ongoing Brexit-related uncertainty impacting GDP, we expect conditions across the UK economy to be more favourable in 2020-21, facilitating a bounce back in business & consumer confidence.

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