Backers of the February initial public offering (IPO) of HSS Hire (HSS) are fearing the worst ahead of first half results to be published in August.

Shares are trading 22% lower at 143p after a trading update which says second quarter performance was 'marginally below expectations' and year-on-year profit will be flat.

HSS is down 32% from its 210p a share initial public offering.

HSS HIRE GROUP - Comparison Line Chart (Rebased to first)

Arriving on the stock market with a negative tangible book value even after a fundraising and financial reorganisation, HSS looks like a lower quality option for those looking to invest in the equipment hire sector.

Longer term, investment in price could be a winning strategy – HSS reported market share gains in today’s update. But its pockets are arguably shallower than those of its main rivals.

Speedy Hire (SDY) and A-Plant, part of Ashtead (AHT), are number one and two in the UK market with HSS third.

Both rivals have positive tangible book values, meaning the value of their equipment and other assets are worth more than their debt and other liabilities.

Speedy’s most recently reported tangible book value per share is 36p according to our calculations, versus a share price of 71p. Ashtead, which has a much larger US operation, Sunbelt, has a tangible book value of 100p a share versus a share price of £11.15.

This should give them financial flexibility to match price cuts if necessary.

HSS has by our calculations a tangible book value of -9p a share, against a share price of 143p.

According to house broker Sanlam Securities, the below par second quarter ‘was primarily due to weakness in Key Accounts, particularly in April and May, as well as reduced demand for cooling equipment in June’.

Sanlam analyst Andy Brown adds: ‘On the face of it, this should not be a major surprise, considering the recent UK general election and its short term impact on demand, but the latest company update at the end of May suggested trading then was ahead of expectations.

‘Market share gains have continued with organic revenue likely to be in the high single digit region.’

Issue Date: 29 Jun 2015