Latest commentary here wrt today's positive H1'21 results from Vp
hxxps://www.linkedin.com/posts/paul-hill-a5994116_vp-cv-activity-6741608722570772480-kgpn |
another encouraging update: revs up from 55% of pre-Covid levels in April to c 85%. H1 saw £41m of cashflow + Sept net debt fell to £118.7m vs £159.8m in March.
Modest ratings for the shares: 7.2x PER, 1.5x Price:Book and 3.9x EV/EBITDA - see new research note from Equity Development here: |
Positive news in AGM update that, after 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.
Encouragingly the group has generated £22m of positive cashflow over the past 3 months, with net debt closing June lower at £138m vs £159.8m in Mar’20.
According to new research note from Equity Dev, at 700p the shares appear lowly rated - equivalent to trailing FY20 multiples of 7.8x PER, 1.7x Price:Book and 4.3x EV/EBITDA. Read full note here |
Latest commentary here wrt today's positive trading update from Vp ahead of its 10am AGM
hxxps://www.linkedin.com/posts/paul-hill-a5994116_bltg-covid19-bltg-activity-6691597794777604096-CW9z |
Results are in line , with adj PBTA reaching a record level. Obviously coronavirus means uncertain outlook in short term , but even without forecasts 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.
Full note from Equity Development just published (with debt and re-opening of construction addressed) . Free access here: |
ed:> How worried are you about debt? Also lot of noise in press about need to lock down parts of the construction industry - ED and Company (gut feel) possilby too confident about short term impact. |
Amidst a rush of updates today, Vp look in good shape: trading 'satisfactory' since interims in Dec and FY seen just marginally below expectations.
New research from Equity Development just published shows low rating: trailing 5.5x PE, 1.2x Price:Book and 3.8x EV/EBITDA - vs 860p/share fair value.
Click here for full note: |
Seems pretty good new contract win
hxxps://www.railadvent.co.uk/2020/02/network-rail-awards-257m-portable-plant-contract.html |
Interims show 'good progress' and Board 'confident of a positive full year' says the Chairman
PBT £25.9m , EPS 52.5p and H1 div 8.45p +3%.
New research note out from Equity Development, notes Group's resilience and retains fair value at 1075p/share. At last close of 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.
Free access to read, just click here: |
 hxxps://www.equitydevelopment.co.uk/company/?company=Vp&c=zgDO
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. |
Today's statement on current year's trading is relatively subdued compared with the company's rosy and upbeat annual and interim statements.
The construction industry is in decline and there will be more competition for lower margins.
VP's overseas divisions are small.
VP has not reduced its net debt and overall liability since its expensive acquisition of Brandon Hire.
The Competition and Market Authority will continue to investigate into VP for cartel malpractice. Fines and penalties by regulatory authorities throughout the world, including the UK,are getting heavier and harsher. VP's provision on this aspect is unlikely to be adequate. Moreover, it is quite possible that VP's other divisions may be investigated.
The weekly chart did not bold well for a week, with the signal cutting down. Now the share price has fallen below £8 the next stop will be £7 testing its previous low. |
More detail on the above is in a published research report , freely available here : |
Today the company said at its AGM 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 |
 VP's continues to pay higher dividend year after year. This is unsustainable because the Group does not generate sufficient cash.
It is no good to look at the Group's announced statistics because they are in a way distorted and meaningless.
The balance sheet tells me a different story. The company has higher Trade Creditors and a huge bank borrowing (to finance the Brandon Hire acquisition). On the other side of the equation it has huge intangibles. You know what intangibles mean. They don't have tangible value. They are there to balance the books (purchase price minus net book value/fair value acquired). It added £55 million of intangibles to its balance sheet when acquiring Brandon Hire.
In plain English, this is money paid upfront to the Vendors of the Brandon Hire business in the hope that the business will generate sufficient cash in the future.
Any hiccup will result in write-down in the future, as we have witnessed too often elsewhere.
There will be more bad debts to hit the plant hire division. The only saviour so far is a piece of financial engineering in that the company has used its cheap debt to pay off £25 million expensive loan inherited from Brandon Hire, thus saving the group interest charges. This will enhance group profit and earnings.
VP's future is not as rosy as the directors have painted. Brandon Hire was acquired in November 2017. It contributed only 4 months worth for the year ended 31/3/2018. For the year ended 31/3/2019 Brandon contributed a full 12 months to the group. All the statistics of course are +++++. But the bottom line is more pedestrian, which for reasons mentioned above does not justify higher dividend, in my opinion. Time will tell whether my analysis is correct. |
Depreciation is a major component of cost of sales in the plant hire industry.
Amortisation (of goodwill on acquisition and other kinds of goodwill and intangibles) is also a recurring charge to the Profit and Loss account. It is more so as VP is building up its businesses via acquisition rather than by organic growth.
Turnover will obviously increase as the group expands. Other performance measures will obviously improve because they are stated pre-amortisation and pre-depreciation, and also pre-interest. These measurements flatter the results of the trading divisions. Moreover, a lot of central costs etc are charged to the Holding Company and anything that may be classified as Exceptional will be charged as such to flatter the divisional results.
In short, the divisional results are not as good as they are portrayed to be.
You need to look at cash flow,net debts and the overall Balance Sheet to gauge the financial health of the Group. Growing by acquisition and by debt has many weaknesses.
On trading practices and allegation of price fixing, the CMA will no doubt carry out a detailed investigation and act accordingly. |
Big movement today, maybe tipped somewhere? Still decent value |
Agreed : record results from with revs £382m +26%, PBT +15%, EPS 95.1p +16% and div 30.2p +16%. Acquisition of Brandon Hire already working out well.
Updated research now out from Equity Development with forecasts and £11.50 fair value / share retained.
free access here@: |
See this is moving up a bit now. If the fine and findings aren't to harsh in the price fixing case it could go back to £10 +Still only be on a pe of 10 and a decent yield 60 year old business |
Obviously there's a huge uncertainty here, but I wonder if this is oversold now.. though it'd be brave to buy now I suppose.
Here's the CMA's case:
"The CMA provisionally considers that MGF and VP were involved during three periods between 23 September and 4 October 2011, 14 February to 24 November 2014 and 12 November 2015 to 28 November 2016, and that Mabey was involved between 14 February to 16 July 2014."
The scale of fines seems to relate to: turnover during the period concerned - ie maybe the year 2016. There are multipliers for the length of time, and for whether they instigated any cartel or not. From a quick read, I feel a fine would be in proportion to Groundforce's turnover during c. 2015/1016, not the whole VP group, but I may well be wrong there.
Apart from damage to their reputation, I don't think this will effect future profitability directly. Though a fine will of course add a slug of debt to the balance sheet. |
Vp shares hit by construction cartel probe See BBC business news
Also if profits have been inflated due to cartel actions then (imo) margins will be squeezed once cartel is dismantled PLUS of course the penalty coss (if fined) will be a one off hit. |
CMA fine looking likely here. Although likely to be small, could see negative reaction |
Thanks edmonda. Really appreciate all the sector multiples, which suggest there is further to run on Vp.
Also liked the bit on downside resilience given the Brexit impasse in Westminster - "if the equity markets become increasingly choppy again over the next few months, then we think tucking away consistent high-performers like Vp on any dips, should prove to be a lucrative strategy." |
Update today of further progress in recent trading and Brandon Hire integrating well. FY to end March seen in line, with results due 4 June.
Equity Development research note just out with raised fair value share price, freely accessible here: |
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