Van Elle Holdings – Building upon Solid Foundations

Yesterday’s finals announcement from Van Elle Holdings (LON:VANL), the UK’s largest ground engineering contractor, were very much in line with my expectations from when I first profiled the company in late March this year.

With revenues unchanged at £84.4m for the year to end April, the group reported an adjusted pre-tax loss of £1.2m against £0.9m previously.

The impact of Covid-19 upon the company’s trading was really quite evident.

But that was the last year

Looking deeper into the results, and after having talked with the group’s CEO and CFO yesterday morning, I now have a strong opinion that times are getting better.

Already we know that the first quarter of the current year to end April 2022 has shown some positive trading.

The group’s order book as at 9 August was standing at £34.7m, up from £26.4m on 1 June.

The group’s business

It provides a range of ground engineering techniques and services including – ground investigation, general and specialist piling, rail geotechnical engineering and modular foundations as well as ground improvement and stabilisation services.

In the last year it handled 1020 projects, giving its fleet of 115 rigs a utilisation rate of around 51%. It would have been a lot higher had it not been for the pandemic hassles. It managed 930 projects in the prior year.

Three main divisions

The group operates through three divisions: general piling (190 projects), specialist piling and rail (284 projects) and ground engineering services (546 projects).

General piling provides a range of larger piling and ground engineering solutions for open-site construction projects. This side generated £27.3m of revenues last year.

Specialist piling and rail covers a range of geotechnical solutions in operationally constrained environments including on-track rail applications. Handled £29.3m of revenues.

Ground engineering services offers various ground investigation and geotechnical services and modular foundation solutions. Managed £27.6m in revenues.

Three main markets

The order book is derived from the company focusing upon three end-markets: residential and housing, infrastructure and regional construction.

Residential business, with customers like Barratt Developments, Taylor Wimpey and Persimmon, generated sector revenues of 44% of the £84.4m total.

Infrastructure, for clients like Network Rail, Highways England and HS2, created some 34% of the group’s total.

Regional construction, covering work for Galliford Try, Morgan Sindall and Kier, made up 22% of the overall turnover.

Covid-19 was a delaying factor

The dreaded virus held the group back somewhat, as it progressed under its relatively recent appointed management team, headed by CEO Mark Cutler, who joined three years ago, and CFO Graeme Campbell, who came on board a year and a half since.

Perhaps a one-year delay in its sales and profit hike was the result. However, the corporate growth strategy remains firmly in place.

But this year it is a different story

The first quarter’s strength of business together with a strong balance sheet with £8.5m cash, a growing order book and the prospects of delayed rail business being enacted all combine to make this a very interesting recovery prospect.

Peel Hunt estimates 52p a share

Analysts at Peel Hunt rate the group’s shares as a “buy” with a price objective of 52p. They go for £97.3m sales this year, generating a £3m adjusted pre-tax profit which is worth 2.3p per share in earnings.

For the next year they see £104.3m sales and £5m profits, working out at 3.8p per share in earnings.

Zeus Capital see 64.4p of value

Zeus Capital initiated coverage of the company yesterday. Their analyst Andy Hanson is more bullish than those at Peel Hunt. For this year, he has gone for £102.7m of sales, £2.6m profits and 1.9p of earnings. He sees this leading on to £108.1m sales in the next year with £4.6m of profits and 3.5p earnings.

Further down the line, Hanson estimates that the end April 2024 year will see £113.5m of revenues and £6.5m of pre-tax profits, worth 4.9p per share in earnings and covering a 1.7p dividend.

Based upon his estimates, his valuation of the shares is 64.4p.

AGM at end of September

The group will be holding its AGM on Monday 27 September, at which time another Trading Update will be issued.

Fingers crossed it will be positive and give detail of further progress in achieving greater rail orders.

Massive dealing volume yesterday

The group’s shares closed at around 46p last night after a considerable dealing volume of over 1.1m shares, against the recent average daily turnover of just 30,685 shares dealt.

Up 37% since profile

The company’s shares have climbed by 37% to 51.5p since I profiled the company in late March at 37.5p.

At the current 46p they are still up nearly 23% in just over four months, but I think this is just the start.

My View – another 30% plus to go for

I see them easily breaking back over the 50p level and upwards to 60p before the end of the year, which offers another 30% plus price lift.

Great upside not to be missed.

(Profile 29.03.21 @ 37.5p set a Target of 47p*)