Hercules Site Services – Infrastructure sector growth offers opportunity

With blue-chip and top-name clients like Balfour Beatty, Kier, Hochtief, Thames Water, Galliford Try, Highways England, Strabag, Skanska, Anglian Water, Volker Fitzpatrick, Atkins, Vinci, Costain, Morrison, SMB, Southern Water, Black & Veatch, Dyer & Butler, and HS2 this company is certainly playing in the big boy’s marketplace – yet it is only capitalised at £32m.

Set up in 2008 by Brusk Korkmaz, the Cirecester-based Hercules Site Services (LON:HERC) is a newcomer to the AIM market.

It floated in February this year following an aggregated subscription, institutional placing and retail offer through PrimaryBid. It raised £8m for the company and £4m for a vending shareholder. Its share price was then 50.5p.

The UK Infrastructure Market

The company considers itself to be a leading technology-enabled labour supply company for the UK infrastructure sector.

This particular market is believed to offer a compelling and growing opportunity, especially as the UK bounces out of its Covid-19 hassles, with many delayed contracts now being resumed.

Some £650bn is the current total investment figure expected to be devoted to infrastructure and construction projects over the next ten years.

Around £200bn of that total will be invested by 2024/25, which in turn will be supporting 425,000 new jobs.

Major projects like HS2, other upgrades to parts of the struggling rail infrastructure and also upgrades to strategic roads, will require an estimated 217,000 additional skilled construction workers in the period to 2025.

That has meant that there is a very high demand for labour, with companies expecting to employ a local workforce. There was already a labour deficit, so workforce supply is a very important factor for this group’s clients.

The Business

Korkmaz and his management team consider that their agile, innovative, digital-first approach and its complete service is perfect for its growing client list.

Offering a range of site services under one roof, the Hercules single platform solution for construction services has no direct comparisons in its market.

It has four divisions enabling it to deliver its services within the civil engineering sector of the construction industry – the supply of skilled labour, complete civils projects, the hire-out of its state-of-the-art suction excavators and other plant, and the provision of digital solutions for construction recruitment and workforce management.

The company has a proven strategy to recruit and train new and existing workers supported by apprenticeships and upskilling programs.

Through the Hercules One Team app, which facilitates a seamless onboarding process, the group’s clients can access its growing nationwide workforce. There are currently well over 5,000 users of its apps.

By way of the apps, its digital capabilities and its bespoke database, the group’s clients and employees/contractors can create more efficient and effective results.

The company supplies general operatives, foremen, carpenters, concrete finishers, banksmen, groundworkers, steel fixers, scaffolders, skilled operatives, machine operatives, gangers, dumper drivers, bricklayers, plasterers, pipe layers, security, cleaners, site supervisors, and site engineers.

Through its various services the group supplies sectors, such as general civils, highways, utilities, rail, power, and energy.

Suction Excavators

The group has recently agreed to acquire, at a cost of £4.5m, another ten suction excavators, which will take its fleet up to some 30 by the end of March next year.

This side of Hercules’ site offers, which complements its labour supply services, is currently experiencing strong demand, far outstripping supply.

The excavators can safely and efficiently excavate significant quantities of materials and debris, while reducing the risk of service strikes.

Mobile Health Screening

The group also has a mobile health screening trailer which is able to be deployed anywhere across the UK.

The trailer provides a range of medical services, including vision and hearing tests, safety critical medicals, heart and blood pressure testing and lung function testing to on-site operatives.

The medical screening facility also provides mental health support, discreet monitoring of modern slavery related issues and a platform for raising awareness of health, safety and wellbeing issues to workers.

As an example – just imagine the site disruption as 200 workers have to go off for Covid booster vaccinations – now they can all be administered in just one place, on site, at a significantly reduced time cost.

The Hercules Site Services Mission

The group aims to be a ‘world class service’ provider to its clients.

It operates under its core values – collaborative, innovative, committed, united, and trustworthy.

“Through an innovative and collaborative approach, we will generate, build and sustain a world class service and delivery which will leave a legacy for future generations.”

The Equity

There are some 58.65m shares in issue. Hercules Real Estate (Brusk Korkmaz) retained 41.90m shares, representing 71.44%, after the IPO.

Larger investors include Premier Miton Group, holding 7.72m shares with 13.17% of the equity, and the Linista Group which owns 4.95m shares, some 8.44% of the group’s equity.

Broker’s View

Analyst Tania Maciver, at the group’s NOMAD and broker SP Angel, is looking for the current year to end September to report some £45.17m in sales (£32.75m) and which will show a loss of £0.24m.

However, for the coming year she goes for revenues leaping ahead to £62.26m, upon which the group could make a very useful pre-tax profit of £3.08m, worth 5.3p per share in earnings.

Maciver is anticipating revenues of £67.78m in 2024 and then £70.01m in 2025. Profits in those two years respectively are likely to be around £3.51m then £3.91m.

She has put out a price objective on the group’s shares of 74p and rates them as a ‘buy’.

My View

When everyone is digging for gold, the best thing to do is to sell shovels!

Labour demand is at its highest level for over 20 years, while there is a colossal mountain of infrastructure projects to be handled, which makes me consider that Hercules is very well positioned to gain significantly over the next few years.

The group’s management has identified a number of other opportunities capable of creating a good impact upon the future growth of Hercules Site Services. We can expect, not only organic but also acquired growth to come.

Investors could be getting a further Update on the current year progress at its AGM on Wednesday 25 May.

In the meantime, the group’s shares, which have been up to 58p and as low as 45p since the float, are now trading at around the 52p level.

While SP Angel have a 74p price objective on the shares, my short-term Target Price is more moderate at 65p, especially until more positive news excites the market.