Lavendon Share Discussion Threads

[frankwhite] 26/8/2016 13:37

Have a look at the 10 year chart, it's grim. The 10 year annualised return is -4.62% WTF!
hxxp://tools.morningstar.co.uk/uk/stockreport/default.aspx?tab=7&SecurityToken=0P00007OJO%5d3%5d0%5dE0WWE%24%24ALL&Id=0P00007OJO&;ClientFund=0&CurrencyId=GBP

[frankwhite] 26/8/2016 13:27

Share price over the last 5 years has been abysmal and stuck between £1-£2, hardly exciting. I have sold my holding into this rise to breakeven. The share price price will float around this price or even come down that I'm sure of.

[spud] 26/8/2016 13:20

I guess if you don't like the Balance Sheet and/or the bottom line, you either don't buy or short the bollo*ks out of it!

I would say you're a brave lad currently doing the latter, but best of luck anyway..

spud

[wjccghcc] 26/8/2016 11:51

dahhad, they are cautious over Brexit and concerned that the current Saudi slowdown will spread to the rest of the Middle East, leading to a drop in earnings next year.

[muffinhead] 26/8/2016 11:48

Dividends are being paid out of borrowings
Increasing debt

Statutory results

[dahhad] 26/8/2016 11:48

WJCCGHCC - have you any details you can share behind the N+1 Singer 114p target? Thanks

[bend1pa] 26/8/2016 11:14

"Dividend yield is almost 5%, 3-times covered.
It has a strong balance sheet"

'Fraid not. The div isn't actually covered at all. As usual the cashflow sheet tells the real story with companies too eager to trumpet flattering headline figures on the back of a poorly performing share price

LVD lost money. "Met cash from operations" -£5158, as was the case in 2015 (FY -£21,000). So, no money to pay a div. That is being paid by borrowing. And the balance sheet isn't strong either. It's becoming more stretched - gross gearing 48.9%. So as LVD has not been making money in the last 2 years, when will they do so, how do they intend to pay off their loans, or will they rely on rollover credit arrangements until debt climbs to an unsustainable level or the business suffers a downturn and their bank gets twitchy. Expect a big rights issue if that occurs.

[wjccghcc] 26/8/2016 11:06

N+1 Singer reiterate HOLD with 114p target.

[wipo1] 26/8/2016 10:48

Strong balance sheet with £150 million of debt?

[aishah] 26/8/2016 10:38

Peel Hunt reiterate BUY and 275p target

[bpc10] 26/8/2016 10:16

Write up from Paul Scott today on the results:

There's only one share that interests me this morning, Lavendon (LON:LVD) , so let's crack no with that.

Lavendon (LON:LVD)
Share price: 134p (up 7.2% today)
No. shares: 169.9m
Market cap: £227.7m

(at the time of writing, I hold a long position in this share)

Interim results, 6m to 30 Jun 2016 - this is an equipment hire group, operating in UK, Europe & M.East. Its niche is powered aerial access equipment - the website is quite interesting, showing all the different types of product which Lavendon hires out. It claims to be the market leader.

What interests me is that the valuation seems compelling, compared with other hire companies;

Forward PER is only about 6.5
Dividend yield is almost 5%, 3-times covered.
It has a strong balance sheet.
Equipment hire companies are often on a rating of about 2x NTAV. In this case, the latest NAV figure announced today is £237.9m. Deduct goodwill & other intangibles of £51.7m, arrives at £186.2m NTAV. So 2x NTAV (a fair rating, in my opinion), would give a valuation of £372.4m, or 219p per share - which is my reckoning of where the shares probably should be now. That's a very attractive 63% potential upside, if I'm right about this.
Consistently meeting market expectations, yet share price has fallen considerably - this doesn't make sense to me. The market is clearly expecting a big downturn in earnings, but there doesn't appear to be any evidence at all to suggest that is happening, or likely to happen.


Looking at today's interim results, the only surprise is a big increase in the dividend - up 18% - so clearly management are confident.

Forecasts - Peel Hunt is forecasting 18.7p for 2016, and 19.4p for 2017. However, there is possible upside on these figures, because they have not factored in favourable forex movements. Over half of revenue, profit & cashflows are generated outside the UK.

Outlook - there is more detail given, but the key part says;

Trading since the half year has continued to be in line with our expectations and, whilst mindful of the recent increased economic uncertainty, the Board remains confident of making further progress in the second half and delivering on its expectations for 2016.
That sounds reassuring. I wouldn't be surprised if they deliver full year results ahead of forecast, given the forex tailwind. So why the market is only rating this on a PER of about 6.5, is a mystery to me.

Balance sheet - net debt has risen to £148.9m, due to fleet expansion, and forex movements which increase overseas debt when translated into sterling. This really isn't a problem though, and in my opinion the debt is perfectly reasonable when compared with EBITDA and the book value of the hire fleet.

When interest rates are this low, it makes sense for equipment hire companies to borrow cheaply, and generate a much higher return from the equipment. The ROCE here is 12.2%, which has gone down a bit, but looks pretty good to me compared with dirt cheap bank debt.

I suppose the danger is that such low interest rates may cause hire companies to over-invest, resulting in over-supply of hire equipment, and eventually a plunge in profits when the next recession coincides with over-supply.

On a more general level, interest rates being too low, for too long, is likely to lead to all sorts of capital misallocations, with pretty bad consequences eventually. In the meantime however, we can make hay whilst the sun shines.

My opinion - to my mind, this stock is just the wrong price.

The market seems to be anticipating downturns in Lavendon's main markets, which are just not happening. Bear in mind that Saudi Arabia is a particularly profitable market for Lavendon, but other M.Eastern countries seem to be doing well too, and compensating for some margin reduction there.

I'm not madly keen on general hire companies. It's the niche ones which are interesting, such as this. With such attractive valuation metrics, and more positive results/outlook today, I'm feeling very bullish on this stock, and will probably be adding to my position further over the coming weeks.

There again, I'm fairly bullish on the economic outlook. If you're bearish on the economic outlook, then hire companies are the last sector you want to be in - as they're very cyclical. Just look at how profits collapsed at HSS Hire (LON:HSS) and Speedy Hire (LON:SDY) recently, although their problems seem to be more about poor management. The trouble is that when revenues do fall, there's an operationally geared impact due to huge, fixed depreciation charges.

So i'm not in any way glossing over the risks in this sector. However, in my view the lowly valuation at LVD seems excessively pessimistic, hence why I'm bullish on this share. I see good upside, and lovely big divis to collect in whilst I wait. Ideal really.

[qs99] 26/8/2016 09:34

looks like the pop is about to happen IMO!

[adamb1978] 26/8/2016 09:13

Wipo1:

Without the debt, this business wouldn't function! All industries such as this operate with leverage - simplistically borrow 100, use that to buy a piece of kit for 100, rent it out 40 for the next 3 years and make a profit of 20. So the debt is asset backed and generates the following cashflows. Without using debt, they'd have to raises funds from shareholders which is more expensive than the very cheap cost of debt today

Adam

[davr0s] 26/8/2016 09:10

A very long auction .....

[gleach23] 26/8/2016 09:02

Today's results maintain a consistent trend. In the past any initial gains have been sold into. Given the recent high volume day, it'll be interesting to see if our seller is still lurking....hopefully not.

Currently in auction as the price was strengthening.

[wipo1] 26/8/2016 08:52

I sold a little too early, but debt is too high for me. I'm staying out

[adamb1978] 26/8/2016 08:45

Nice bounce this morning - still a lot further to go

[adamb1978] 26/8/2016 08:26

Very decent set of figures. Reassuring, in-line with what they said they would do, no surprises. Agree that its very cheap at current levels - trading on a PE of at best 7x when perhaps 10x owuld be more appropriate. implies something like 50% upside

[nw99] 26/8/2016 08:17

Looking good

[contrarian joe] 26/8/2016 08:16

Pleased with those,surprised by the exceptional s.

[qs99] 26/8/2016 08:13

it has its range it has stated it will operate within, EBTIDA levels IMO more than support that....market likes it from initial spike IMO, but let's see how the IR programme works!

[amencorner] 26/8/2016 08:12

Debt will be high for this kind of business and the rule of thumb of 3xoperating profit goes out of the window. The used debt/invest capital to buy the kit to hire out. Just not an issue at the present levels IMO, just how this kind of business operates.

[rimmy2000] 26/8/2016 07:57

"The Group's net debt before issue costs at 30 June 2016 was GBP149.7 million (31 December 2015: GBP119.9 million). The increase in the level of net debt reflects our investment programme in the six month period, including settlement of amounts owed to equipment suppliers brought forward from 2015, and an adverse foreign exchange movement of GBP11.0 million as a result of the sharp deterioration in Sterling's value against the Euro and US Dollar at the period end"

[tjbird] 26/8/2016 07:54

why is debt up