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  • Mark Watson-Mitchell

Speedy Hire – an easy ride to beat my Target Price


Although the £2bn UK construction rental market is very competitive and highly fragmented Speedy Hire (LON:SDY) is far and away the largest operator, with about a 7% share.


To the construction, infrastructure and industrial markets it is the UK’s leading provider of tools and equipment hire and services.


Importantly, as well as local trades and industries, the group supplies 85 of the UK’s top 100 contractors.


With over 200 depots in the UK and Ireland, the company, which has some 4,000 employees, has an inventory of over 300,000 itemised assets for hire, taking in 2,200 product lines.


Its hire fleet comprises a range of small tools, specialist equipment, and large plant vehicles and machinery. As far as powered access equipment is concerned with over 8,000 machines it now operates the UK’s second largest fleet.


It also retails a range of tools and equipment, as well as safety personal protective equipment and site supplies. Unique in the hire industry, it offers a same day service – order by 3pm with same day delivery guaranteed or get a week’s free hire as compensation. In fact, in London the group now guarantees delivery within four hours.


Overall the group’s fleet age is now just 3.3 years – with utilisation rates running at around the 57% level.


In addition, it also offers various services, such as on-site operative training, test and repair, fuel supply and management, industrial shutdown project management, on-site depots and hire desks.


In the first half of this year 39.3% of the group’s revenue was derived from its services operations, with the 60.7% balance coming from its hire activities.


Over the last year the group has made two strategic acquisitions – one on its services side and the other in access equipment – the two totalled some £31m.


The company, which now has its net debt down to £86m, has a strong balance sheet and plenty of banking headroom, giving it the ability to fund the ongoing organic growth of the business as well making value enhancing acquisitions.


In the near future I would expect there to be a greater emphasis placed on making strategic purchases, especially for the services side.


The group also has operations out in the Middle East. It set up in 2010 in Dubai as a hire equipment provider focused upon the construction sector.


Subsequently it developed a specialist offering for the onshore and offshore oil and gas markets – offering equipment hire, manpower supply, installation works and lifting services. It now has a head office in Abu Dhabi right in the heart of those markets. The group also has a joint venture interest in Kazakhstan.


In the 2018/2019 year the group saw 9.1% of its sales emanating from the United Arab Emirates, at £36.1m, which was an impressive 26% improvement over the previous year.


There are some 525.4m shares in issue, which values the group at around £280m.


It has a strong institutional list of shareholders, including: Schroder Investment Management (11%), Aberforth Partners (8.52%), Standard Life Investments (6.73%), Polar Capital (6.25%), Merian Global Investors (5.22%), FIL Investment Advisors (4.97%), Artemis Investment Management (4.88%), Majedie Asset Management (4.74%), JO Hambro Capital Management (3.46%), and AXA Investment Managers (3.31%).


To the end of March this year the group reported sales of £395m, upon which it made adjusted pre-tax profits of £30.9m. The earnings were 4.85p and the dividend was 1.94p per share.


The estimates for the current year suggest that £427m of sales could see profits of £36m, that would give earnings of 5.53p and a more than twice covered dividend of 2.17p per share.


Then next year revenue of £436m could see profits of £40m, worth 6.13p in earnings and a 2.44p dividend per share.


At around the current 52p the shares stand on less than 11 times historic earnings, less than 10 times current year and just over 8.6 times prospective. And yielding a healthy 3.7% historic, rising to 4% this year and 4.6% next year.


We will get a much more up to date breakdown on just how the company traded in its first half year and how it feels about the balance of its current year, when the company announces its interims on 13 November.


We do know that group revenue was up around 6% on the previous year and that its Board was feeling confident going into its second half year.


This company’s shares look cheap to me and I see them easily hitting my Target Price of 75p by the end of next year.