How friends in high places could help crane hire group rise above the rest
THE equipment hire industry has gained an unfortunate reputation for disappointment. HSS Hire has lost 65 per cent of its market value since floating in February 2015. Sadly, Speedy Hire shares have also slumped since they were recommended by Midas that same month. Even Ashtead, their much larger peer, has been affected by concerns about the outlook for the sector.
Lavendon Group has been dragged down in their wake. Trading at more than 200p last June, the stock is now 133¼p. But the company is different from its listed rivals and the shares deserve to move higher.
Lavendon specialises in powered access equipment – machines that enable workers to operate safely and productively at height.
The company’s equipment is generally associated with helping contractors constructing huge buildings such as airports, logistics warehouses and shopping malls. But its kit is also used to install and maintain mobile phone masts and wind turbines, clean high buildings, film events including the Abu Dhabi Grand Prix, and even renovate old structures and buildings such as Clifton Suspension Bridge in Bristol, Cologne cathedral and the Louvre in Paris.
Specialising in one, rather technical area of the equipment hire market has advantages. It means Lavendon can develop relationships with top-tier construction firms, such as Balfour Beatty, Skanska and Laing O’Rourke, providing not just equipment but advice on how to use it most effectively. The group also prides itself on safety innovations, such as systems that prevent workers being crushed if they become disoriented at height and press the wrong buttons – a mistake that has cost several lives in the past.
Half of Lavendon’s business comes from the UK, with the rest split between the Middle East and the Continent. Investors have expressed concerns on three fronts. First, they worry that the UK economy is slowing down. Then they worry that the Continent is stagnant and Lavendon’s German business in particular is falling behind.
Finally, they worry that tumbling oil prices are affecting business in the Middle East, especially Saudi Arabia.
Chief executive Don Kenny has answers on all fronts. In the UK, where the group has a 30 per cent share of the powered access equipment market, revenues fell by 1 per cent last year, but profits grew as the business improved its fleet, raised prices and developed its consultancy arm.
Revenues began to pick up in the fourth quarter and have continued to do so in 2016, despite worries about economic growth. The group’s German division was a poor performer last year, but the management has been changed and more salespeople have been hired to turn the business round.
And in the Middle East, Lavendon increased its revenues by 7 per cent, with growth in the UAE, Kuwait, Qatar and Oman offsetting a decline in Saudi Arabia. The Middle East is extremely profitable for Lavendon, too, and the long-term outlook is good.
Qatar alone has a £95billion infrastructure programme over the next few years, of which the World Cup accounts for just £2billion. Across the region, there are extensive construction plans and a growing realisation that powered access equipment can be safer and more productive than ladders and scaffolding.
Lavendon’s results for 2015 were above expectations and a first-quarter trading update this week should strike a confident note. Brokers forecast a 4 per cent rise in 2016 pre-tax profits to £40.1 million, with stronger growth in 2017. The group is paying a 5.4p dividend for 2015, expected to rise to about 5.8p this year.
Midas verdict: Lavendon is suffering by association with the wider equipment rental sector, but it is more specialised than its peers and has a six-year record of profit and dividend growth. At 133¼p, the shares are worth tucking away.
Traded on: Main market Ticker: LVD Contact: lavendongroup.com or 01455 558874