Speedy Hire – capital growth on just 8.7 times earnings and a good looking 5.5% yield

Last Monday’s final results announcement from Speedy Hire (LON:SDY) reminded me yet again just how cheap its shares are currently.

Several times over the last couple of years or so I have commented upon this group and I have no compunction about returning to do so after its latest figures and statement.

The business

Based in Newton-le-Willows on Merseyside, the £231m capitalised group is the UK’s leading provider of tools and equipment hire services.

Its massive range of clients includes market leaders in the UK construction, infrastructure and industrial markets.

It supplies large national customers, including 86 of the UK’s top 100 contractors.

It also deals with local trade and industrial companies across the country, as well as with the general public.

In the last year or so it has formalised its partnership with the B&Q stores group, boosting its trade and retail sales through various of its depots, as well as through its diy.com website.

Speedy itself has some 200 fixed sites across the country, supplementing its own online activities.

The company hires out a range of tools and accessories, including access, lighting, survey, lifting, rail, safety equipment and ATEX, plant, site and traffic management, communications, and pipework and engineering equipment; compressors, generators, and pumps; and heating, ventilation, and cooling equipment.

It also sells access, lifting, survey, rail, and personal protective and safety equipment; various tools and equipment; and cutting, grinding, and sanding equipment, as well as site supplies.

In addition, the company offers partnered, fuel management, testing inspection and certification, advisory/technical, powered access, out of hours, building information modelling, and aviation services, as well as customer service centres, and training services.

The group provides a unique industry leading national four-hour delivery promise on its 350 most popular products.

It has some 300,000 itemised assets for hire and employs over 3,300 people.

The Equity

There are some 510.5m shares in issue.

The larger holders include Schroder Investment Management (12.8%), Polar Capital (7.23%), Abrdn Investment Management (6.02%), M&G Investment Management (5.11%), FIL Investment Advisers (UK) (5.09%), Jupiter Asset Management (5.01%), Aberforth Partners (3.98%), Franklin Templeton Fund Management (3.27%), Threadneedle Asset Management (2.77%) and Hargreaves Lansdown Stockbrokers (2.50%).

Brokers View

Analyst Charlie Campbell, the sector specialist at the group’s brokers Liberum Capital, after Monday’s announcement, was impressed by the group’s strong recovery over the last year or so.

For the current year to end March 2023 he estimates £417m sales revenues (£387m), pre-tax profits of £34.3m (£29.6m), earnings of 5.4p (4.1p) and an increased dividend of 2.5p (2.2p) per share.

For 2024 and 2025 respectively, he sees sales of £432m and £448m, leading to profits of £37.0m then £39.5m, worth 5.4p then 5.7p in earnings, sufficient to pay 2.6p then 2.8p in dividends per share.

Nice steady growth all around.

Campbell rates the shares as a ‘buy’, looking for an 80p price objective.

My View

I really like this little group. It is yet another in my series of ‘basic’ businesses, never going to set the world alight but where its shares are extremely attractive for capital and income growth.

It has a strong balance sheet and very good banking facilities. It is continually updating its fleets and its product ranges, pandering to a growing customer demand.

Importantly, it will be gaining in the current and next year as its hire rate pricing is moved higher.

It will also benefit very well as its tight management will help to increase its utilisation rates and its margins.

As the infrastructure sector grows apace it will be a clear beneficiary of additional business.

The B&Q arrangement could also prove to be a winner in due course.

At the current 47p share price I consider that this group’s shares are ready for another lift upwards.

That rates the shares on just 8.7 times current price-to-earnings and yielding a very handsome 5.5%.

We did well subsequent to the first Profile on the group in late 2019 then at 52p, they hit 80p within months.

I now set a new Target Price of 60p on the shares within the next year.

(Profile 15.10.19 @ 52p set a Target Price of 75p*)

(Asterisks * denote that Target Prices have been achieved since Profile publication)