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Looking round corners…

EHN’s financial analyst, Nick Spoliar of WH Ireland, considers the outlook for our industry as we head into 2018.

Sometimes a visit to the dentist is not as bad as it seemed as though it would be, even if some treatment was required. The Bank of England appears to have botched the interest rate announcement, leaving confusion about the timing of the next rise - unless this was all part of an exceptionally cunning plan.

In any case, the recent hike was comfortably taken in its stride by the equity markets, which apparently took a ‘one and done’ view. This despite the fact that 1-2 more rises are expected by economists in the next 2-3 years. Indeed, timing is, as ever, uncertain but with inflation creeping up, a second rise in 2018 seems possible - always subject to the big picture.

Brexit - presumably 2018 will bring increased clarity. Indeed, if rumours are to be believed, the EU’s so-called ‘bar bill’ will be agreed before Christmas. €60bn anyone? Talking to companies, I find that there is increasing focus on (1) trade tariffs and (2) the supply chain. A manufacturer may not be massively exposed itself to the Continent, but supposing it has a supplier of vital specialist equipment which also has many European clients? These are known unknowns but - while discounting some of the more outlandish fears that have been expressed - no less unknown for that; hence the pervasive sense of uncertainty.

Speedy’s success

While we are on this subject, let’s celebrate success in the sector. Speedy’s* makeover led by Chief Executive Officer Russell Down appears to be gathering pace judging by the pre-close update on 19 September. This highlighted sales up 7.5% in the first five months of their financial year and another round of overhead savings to generate of £3m p.a. Full year forecasts in the market rose by 5-10% (source: Bloomberg). Utilisation improved but, at 54.5% for the year so far, doubtless leaves more upside.

The shares have rallied modestly but still remain below 2017 highs and well below the five-year peak of around 80p (though above the low of 30p). In mid-October, Speedy successfully re-financed, lowering its cost of borrowings which are, incidentally, well down from where they were a year ago (£65m at 30 September 2017 versus £85.4m the year before). Not long to wait until the results on 14 November - ahead of us as I write. Something else to celebrate in the sector - a good home in our view for Brandon Hire* with Vp*. More on this after Vp reports on 21 November, but on the face of it, the two companies fit like a glove.


Speedy’s recovery appears to be gathering pace.

Predictions right now for 2018 seem like early Christmas decorations. It feels like a mug’s game to predict where our politics will be in a few weeks’ time, let alone next year. It seems safe to predict continuing hesitancy, though it is fair to say that the biggest pessimists have had to eat their words so far over Brexit. It has certainly been right to be pessimistic about HSS* so far in 2017, which will no doubt update the market ahead of its December year end, after a torrid third year as a quoted company, and a year in which the shares have again more than halved in value.

Not a good note on which to end, so I will conclude by saying that the latest manufacturing PMIs (Purchasing Managers Index) have reported rises in confidence, followed by the service PMIs, and - subject always to the upcoming Budget on 22 November, the industries that the sector serves seem to be, if not in rude health, managing to grow their way into 2018.

* Not under formal research coverage, with the exception of Vp, where we have a research 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 for full disclaimer. WH Ireland Limited is authorised and regulated by the Financial Conduct Authority (Financial Services Register number: 140773)

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