MARKET WATCH
Rainy days in August …
EHN’s financial analyst, Nick Spoliar of WH Ireland, considers recent statements from Speedy and Vp, and the wider economic picture.
The Monetary Policy Committee’s vote in early August to leave interest rates unchanged again betrays the Bank of England’s concerns about the economy - otherwise this might have been a time to start to indicate some choking off of cheap credit. Weakening indicators on car registrations, the housing market and GDP growth have all been pointing in the same direction. Inflation may be at, or close to, the peak -and the oil price has softened - but the worries won’t go away in the current phase of uncertainty. A bit like the weather, in fact.
As I write this in mid-August, the markets are down a touch on recent gains and have had their off-days on fears of Armageddon in Asia, but they really seem very steady when you consider the worrisome geo-political risks the world is learning to live with at present.
Construction output down
Closer to the hire market (or so I hope), the sufferings of the UK construction industry were revealed in the Office for National Statistics data, which showed sector output down by 1.3% in the second quarter of the year, more than reversing the rise in Q1 and against ONS expectations of a rise. Month on month, the sector fell marginally, by 0.1%, declining for the third month in succession. Repair and maintenance fell for the fourth month in a row.
Speedy’s* AGM statement was first up in the period, being announced on 12 July. Sales increased mainly on the back of non-hire, but margins, utilisation and investment are all up, debt significantly down, and all on track to meet expectations of a big full
year increase in profits year-on-year. This was followed by Vp* on 1 August, which showed a good start to the new financial year and decent demand for its equipment against a stable market backdrop.
Ashtead’s* acquisition for up to $C295m of the Toronto-based CRS rental company was well-received by the markets. No more trading news from HSS* since the previous update, and the shares have continued to drift/trade sideways, closing the week ending 11 August at 54p, less than a quarter of the post float highs.
With quieter news flow from the sector, there is perhaps a timely opportunity to stand back and think about how the hire market has changed massively in the past 15-20 years (and where it is going next). Consolidation has been a theme, but this is something which is never remotely complete in this sector. The move from the High Street to the industrial park has been well-documented, and changing models for equipment and tool hire may have something to do with both the successes and failures of some of the companies which are familiar names. A thought-process to be continued …
*Not under formal research coverage, with the exception of Vp, where we have a recommendation but no corporate relationship.
WH Ireland states that this is not an offer or a solicitation to buy or sell any security. Estimates contained herein are sourced from already published information (Bloomberg). See
http://wh-ireland.co.uk/website-policies#disclaimer for full disclaimer. WH Ireland Ltd is authorised and regulated by the Financial Conduct Authority (Financial Services Register number: 140773)
The move by some hirers from the high street to the industrial park has been a trend in recent years. 9
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