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Caravan moves on …

EHN’s financial analyst, Nick Spoliar of WH Ireland, reflects on the reaction to the surprising general election result, and assesses the latest news from Speedy, Vp, Ashtead and HSS.

Well, I did say to expect the unexpected! The last Market Watch (EHN, June issue) was published shortly before the election. We got one thing right at least, though down at Market Watch HQ we certainly did not envisage the scale of divine retribution that was about to be visited on some senior politicians.

What next? Everyone will have their own opinion about this, but it hardly seems credible that the government can limp on indefinitely with a majority (ex-DUP) that can be counted on the fingers of one hand.

Speedy has stabilised and looks well positioned to drive forward.

As the adage goes, “The dogs bark, but the caravan moves on.” Is this still broadly the case for the economy? Unemployment was flat in June at 4.6% - a good result. House prices were up 5.6% (though the overall trend seems to be down). US shale production is expected to have hit all-time highs in June, putting pressure on the oil price, which in turn reduces inflationary pressures. Still on oil and gas, the global rig count continued to rise, again negative for the price (Source: Baker Hughes).

The main surprise came from the Bank of England, which shockingly voted 5-3 in favour of keeping rates unchanged - who knew that as many as three members of the Committee wanted to raise? The market took a tumble, recovered, but has since drifted lower.

On to the stocks. First, your correspondent went to the Speedy* full-year results meeting for the year to March 2017, which reported revenues and profits up, the size of the fleet down, better utilisation and much reduced levels of net debt. Return on Capital Employed (ROCE), a key indicator, rose to 8.4% excluding disposals (previous year: 3%) - double digit figures beckon for this metric, surely.

Adjusted profit before tax was up 224%, albeit from a low base as the company only made £5m in the previous year. All in all, it is hard to dissent from CEO Russell Down’s summation that the business has been stabilised and is now better able to take advantage of market opportunities.


Elsewhere among the rental equipment quoted companies, the ever- reliable Vp* produced a good set of results, with adjusted profits up 17% and better than our forecast. Vp’s oil and gas equipment business experienced challenges in 2016-17. No surprises there, and how great that the management team managed the mix effectively as before, so that this was not a problem.

Ashtead* generated strong growth even before taking account of exchange rates. Not just Sunbelt in the US, but A-Plant also grew strongly. Interestingly, CEO Geoff Drabble made the point in the results commentary that structural change continues, with customers increasingly attracted to the flexibility of rental. This seems very positive for the sector overall.

HSS’s* recent update highlighted revenues marginally ahead year on year and savings at the upper end of expectations set by the company. Month by month sales growth momentum is said to be there, and the new CEO has found “a fundamentally strong business”. Still early days, no doubt, for shares which have been treading water in the 55-60p area, roughly a quarter of the 200p-plus float price two years ago.

*Not under formal research coverage, with the exception of Vp, where we have a Buy 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 Ltd is authorised and regulated by the Financial Conduct Authority (Financial Services Register number: 140773)

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