Van Elle Holdings – digging deeper and chugging along

Next Monday will see this piling and ground engineering group announce its interim results for the six months to end October 2021.

We have already had a pointer for the period when the company declared its Trading Update in late November.

At that time Van Elle Holdings (LON:VANL) stated that it had experienced strong activity level in most of its divisions, showing a significant increase in revenues to some £60m, up 56% over the corresponding period in 2020.

The group

Based in Kirby in Ashfield in Nottinghamshire, this company, which was set up in 1984 and floated in 2016, is the UK’s largest and most diverse geotechnical and ground engineering contractor.

Its business

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

In the last year to end April 2021 it handled 1020 projects, giving its fleet of then 115 rigs, which is now up to 118, a utilisation rate of around 51%. It would have been a lot higher had it not been for the pandemic hassles. In the previous year it managed 930 projects.

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.

Excellent institutional backing for the equity

There are 106.67m shares in issue. Larger holders include Ruffer (19.7%), Otus Capital Management (19.2%), Miton Asset Management (10.7%), Close Asset Management (6.98%), Harwood Capital (6.40%), NR Holdings (UK) (5.63%), Henderson Global Investors (3.96%), LGT Capital Partners AG (2.83%), Cavendish Asset Management (2.71%) and Gresham House Asset Management (2.65%).

Brokers View

Following the November Trading Update news both Zeus Capital and Peel Hunt rated the group’s shares as ‘value’ stocks.

For the year to end April 2022 analyst Andy Hanson at Zeus Capital is estimating revenues to have increased from £84.4m to £102.7m, while adjusted pre-tax profits of £2.6m will replace the 2021 loss of £1.2m. That could see earnings coming out at 1.9p per share (loss of 1.1p).

For the next year he sees £108.1m of sales, profits of £4.6m and earnings of 3.5p.

The 2024 year has estimates of £113.5m takings, £6.5m profits, with earnings of 4.9p per share.

Over at Peel Hunt their analysts are going for sales of £97.3m in 2022, £104.3m in 2023 and £111.6m in 2024.
Profits in those years go from £3.0m in 2022, £5.0m in 2023 and £6.0m in 2024, with earnings of 2.3p, 3.8p then 4.6p per share respectively.

Dividends are generally expected to rise from nil to 1.0p for this year, 1.3p for next year and 1.85p in 2024.

Zeus Capital has a value of 64.4p on the group’s shares, while Peel Hunt has a price objective of 52p for them.

My View

I am looking forward to a positive statement from the company next Monday, showing that, despite general industry and economic hassles, it is now on the recovery tack and that it is back to run rates exceeding its pre-Covid-19 levels.
From a sluggish start in the current year, I understand that both Rail and Highways work projects have been building up, especially good for the higher margin specialist piling side. Order books are, hopefully, increasing over the £35m level.

My first profile in March last year caught the shares at just the right level, that was before peaking almost 39% higher at 52p last September.

That they have subsequently fallen back again, now at 43p.

At that level I consider that it offers investors looking for good solid profitable growth, an ideal opportunity to take out a new position or to add further to holdings.

I reckon that my price objective will be beaten again very soon and that the shares will go even higher.

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

(Asterisks * denote that the Target Price has been achieved since publication of the Profile)