Speedy Hire PLC

Speedy Hire PLC (SDY) is a Merseyside, United Kingdom-headquartered tools, equipment and plant hire services company, which operates in the construction, infrastructure, facilities management, events and industrial markets in the country. In addition to a range of high quality and fully tested products, it also offers consumable and equipment sales, along with certification and testing inspection services, and training through more than 200 locations across the UK and Ireland, making it one of the largest national networks in the sector. The operations of the group are differentiated in two geographical segments, namely UK and Ireland, and International.

Trading Update
In the first quarter of the financial year 2020, revenue from SME customers grew by 27.5% compared to a year ago and hire and services revenues grew by 1.2% and 13.4% respectively, leading to a growth of 5.9% in total revenue (pre disposals). ROCE for the year to 30 June 2019 was 12.1% (30 June 2018: 11.8%), and net debt remained broadly unchanged from the last year at £91.6m, while asset utilisation rates increased to 56.8% (30 June 2018: 55.7%).

Financial Highlights (FY 2019, in £m)
 
(Source: Company Filings)

Total revenue for the period surged by 5.8% to £394.7m (2018: £373.0m), while revenue (pre disposals) for the year increased by 6.0% to £389.2m (2018: £367.2m), reflecting a growth of 10.2% in service revenue. Reflecting optimisation of the hire fleet due to by changes in revenue mix between hire and services, but offset by the impact of International growth at a lower margin, gross margins were broadly flat at 54.3% (2018: 54.9%) with a growth of 4.7% in gross profit to £214.4m (2018: £204.7m). Operating profit before amortisation and exceptional items increased by 12.0% to £32.7m (2018: £29.2m) and EBITDA increased by 7.8% to £78.7m (2018: £73.0m), due to several cost-saving measures implemented during the year. Profit before tax increased by 51.1% to £27.2m (2018: £18.0m) and adjusted profit before tax rose by 19.3% to £30.9m (2018: £25.9m). Basic earnings per share were up by 57.2% to 4.26 pence, and adjusted earnings per share rose by 21.3% to 4.90 pence (2018: 4.04 pence). Net debt to EBITDA at the year-end was 1.1 times (2018: 1.0 times), as net debt rose by £20.0m to £89.4m at 31 March 2019.

Valuation Methodology
Method:  Price/Earnings Approach (NTM)


Share Price Commentary

Daily Chart as at 04-September-19, before the market closed (Source: Thomson Reuters)
 
On 04 September 2019, at the time of writing the report (at 8:55 am GMT, before the market closed), SDY stock was trading at GBX 50.7, up by 3.47 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 66.00/GBX 45.00. The company’s stock beta was 0.67, reflecting less volatility as compared to the benchmark index. The outstanding market capitalisation was around £257.05 million, with a dividend yield of 4.08 per cent.

Conclusion
The company faces risks to the overall level of economic activity in the country due to the possible impact of leaving the European Union, as construction/industrial market conditions could be affected, impacting the financials of the group. However, the group has prepared contingency plans and is ready for alternative sources for equipment supply. Even after £30.9m of acquisition spend and £21.9m of growth capex, the balance sheet of the group remained strong, with leverage at 1.1x. ROCE also increased to 12.8% and the group declared an increase of 21.2% in the full-year dividend. The group has seen continued growth in SME customer numbers and revenues, and the recent acquisitions have strengthened training and powered access propositions. It continues to optimise the business using digital technology, helping it to report improved operating performance and increased return on capital.

Based on the healthy prospects and supported by valuation done using the above method, we have given a "SPECULATIVE BUY" recommendation at the closing price of GBX 49 (as on 03 September 2019) based on 9.66x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).
 
*Peers of the company are Morgan Sindall Group PLC, HSS Hire Group PLC, Ashtead Group PLC, Travis Perkins PLC and SIG PLC.
*The “Speculative Buy” recommendation is also valid at the current price as on 04-September-19.
 

Topps Tiles PLC

Topps Tiles PLC (TPT) is a Leicestershire, United Kingdom-headquartered retailer of tiles, which supplies tiles and associated accessories to both trade and retail customer base for the refurbishment of domestic housing in the UK through 1,500 specialist experts and 364 stores nationwide, making it the biggest tile specialist in the country.

Trading Update
In the third quarter of the financial year 2019, the group reported that like-for-like sales grew by 3.8%, reflecting a softer trading period in the prior year, and was strongly ahead of the growth of 0.2% reported in the first half.

Financial Highlights (H1 FY 2019, in £m)


 (Source: Company Filings)

Driven primarily by a reduction in the average number of stores trading to 362 in the latest period from 372 in the prior-year period, adjusted group revenues decreased by 0.5% to £109.0 million (H1 2018: £109.6 million), while statutory group revenues for the first half declined by 0.2% to £110.3 million (H1 2018: £110.5 million). Statutory gross profit rose to £67.5 million from £66.68 million in H1 2018, which corresponded to a gross margin of 61.2% (H1 2018: 60.3%). Due to benefits of scale and sourcing, adjusted gross margin recorded a 90bps increase over the prior period to 61.4%.  Adjusted operating costs were £58.5 million, compared to £58.7 million in the prior year, while statutory operating costs rose to £61.9 million, against £59.8 million over the same period in the previous year. Statutory profit before tax declined by 18.8% over the year to £5.2 million (H1 2018: £6.4 million), while adjusted profit before tax rose by 11% to £8.0 million (H1 2018: £7.2 million). Adjusted basic earnings per share rose by 4.7% to 3.15p (H1 2018: 3.01p) and statutory basic earnings per share were 2.03p (H1 2018: 2.67p). The company kept the interim dividend unchanged at 1.1p. Net cash generated from operating activities was £6.2 million, against £7.8 million in the prior year, and free cash flow was £2.7 million, compared to £6.8 million in the previous year.

Share Price Commentary
 
Daily Chart as at 04-September-19, before the market closed (Source: Thomson Reuters)
 
On 04 September 2019, at the time of writing the report (at 11:00 am GMT, before the market closed), TPT stock was trading at GBX 66.40, up by 1.84 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 85.00/GBX 59.00. The company’s stock beta was 0.27, reflecting less volatility as compared to the benchmark index. The outstanding market capitalisation was around £126.90 million, with a dividend yield of 5.21 per cent.

Conclusion
Due to continued benefits of scale and sourcing, which resulted in higher gross profit and a reduced adjusted cost base, profit margins on an adjusted basis increased during the latest period, and the group was successful in reducing net debt. The company expects gross margin to increase slightly in FY 2019 to approximately 61.5% to 62.0% (2018: 61.3%). The commercial tile business continued to grow rapidly, and the retail segment is expected to be supported by an increase in real income in the country.

Based on the above rationale, we have given a "HOLD" recommendation at the current price of GBX 66.40 (as on 4 September 2019).
 

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