Tool hire company Speedy Hire (SDY) says its full year pre-tax profit will beat the board’s previous expectations, helping to drive up the share price by 9.7% to 53p.
The company continues to reduce the size of its hire fleet and return on capital employed (ROCE) is now up 3.3 percentage points to 11% from the prior year.
Liberum analyst Rahim Karin says not only did the 11% figure beat his own forecasts, but ‘it’s the first time in a decade that the group has generated a return at or above the cost of capital’.
ROCE is a good measure of how effectively a company reinvests cash back into its business to generate additional returns. It measures profitability after taking into account the amount of capital used.
The company’s revenue is also growing, with management guiding that it is up by 6% compared to the prior year. This is great news considering that Carillion, a major client of Speedy Hire, went into liquidation earlier this year.
The revenue uptick is down to the company’s ‘renewed focus’ on small-to-medium size enterprise customers.
The company has increased its asset utilisation in the 11 months to February 2018 to an average of 55.4% which refers to the amount of its kit that is being hired.
EARNINGS UPGRADES
Given the bullish tone Speedy Hire’s trading update, Liberum has upgraded its earnings per share forecast for the year to 31 March 2018 by 5% to 3.74p.
However, the investment bank does not make any changes to earnings forecasts for the subsequent two financial years, saying that is a prudent decision in light of broader market uncertainty.
Speedy Hire is now trading on 14.2-times 2018’s earnings with a 2.8% prospective dividend yield.
Full year results will be reported on 16 May.
