Van Elle Holdings – from the ground going upwards

Gradually, market conditions are going to improve for this ground-engineering group and there is a bright future ahead, writes Mark Watson-Mitchell.

As lockdown pressures slowly ease across the country, business is beginning to shake off the Covid-19 blanket of devastation.

Large infrastructure projects are resuming construction, building sites are witnessing greater activity, and even housebuilders are working on new houses as opposed to just completing the finishing-off work of a few months ago.

Largest UK player

This is all good news for the Van Elle Holdings (LON:VANL) group.

Based in Kirkby-in Ashfield, Nottinghamshire, the company is the UK’s largest specialist geotechnical engineering contractor. 

As a specialist sub-contractor, 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.

Over 1,000 projects each year

Over the last 35 years it has completed more than 20,000 projects and currently delivers around 1,000 projects each year. It has a direct workforce of some 400 operators.

The services that it offers span from initial ground investigation through to a full range of specialist and general piling, foundation and ground improvement techniques. 

It is able to deploy an unrivalled range of rigs and expertise across the country. 

Big boys in rigging

The group owns the UK’s largest and best invested rig fleet, some 118, covering over 20 forms of geotechnical, ground improvement and piling techniques.

Offering a full range of integrated ground engineering services, the business now targets three core UK market sectors – residential, infrastructure, and regional construction.

A good institutional spread

Set up in 1984, the company floated on AIM in 2016. Today it has some 106.67m shares in issue.

Large holders include Ruffer (19.67%), Otus Capital Management (19.18%), Premier Miton Group (9.79%), Gresham House Asset Management (8.33%), Close Brothers Asset Management (7.36%), NR Holdings (5.63%), Janus Henderson (3.45%)

Disappointingly the Board only holds a total of 0.53% of the shares.

Poor interims to October but…

In late January this year the company reported its interims to end-October last and, due to the very soft market conditions, they were as disappointing as expected. 

At the halfway stage its revenues had fallen from £48.5m to just £38.3m, with adjusted pre-tax profits of £1.1m in 2019, being replaced by a £0.6m loss.

The group’s first quarter was awful, but Q2 started to show some improvement. 

At the results presentation time the group’s Chief Executive Mark Cutler stated that “Despite the evident disruption in the first half of the financial year, we have made considerable progress in advancing our strategy and enter the second half with confidence that we are well positioned to benefit from the resumption of normalised industry conditions. We are cautiously optimistic about the remainder of this year and into next.”

Peel Hunt sets 52p price objective

Brokers Peel Hunt has rated the shares as a ‘buy’ at 42p looking for them to improve to 52p.

For the current year to the end of April, they are looking for revenues of £76m (£84.4m) and a £1.3m loss (£1m loss).

However, for the coming year they see £81.6m of sales, £3.5m of profits, worth 2.7p per share in earnings and a 1p dividend.

For the subsequent year, Peel Hunt go for £88.7m of revenues and £5.3m of profits, worth 4.1p in earnings per share, easily covering a 1.3p dividend.

The group’s shares, which were 57.5p in late February last year, closed at only 37.5p on Friday night, an attractive level at which to jump aboard before the pre-close trading update is announced in a month or so.

My view

I consider that the company is certainly heading in the right direction and that its shares will soon recognise such improvement.

I foresee the 52p price objective of Peel Hunt coming about in time. However, until more becomes visible I will cautiously fix a target price of 47p.