Shares in equipment rental firm VP (VP.) dipped 3.8% to 760p, despite news of a special dividend, after it posted a 24% drop in revenues and a pre-tax loss for the first half to the end of September as the Covid pandemic curtailed activity in most of its markets.
Although it faced a near-50% collapse in revenues in the early months of the crisis, many of its businesses were categorized as essential service providers and were therefore able ‘to maintain a certain level of business functionality’, said chairman Jeremy Pilkington.
Since the summer, the firm has experienced a marked recovery in activity and generated an underlying operating profit for the half.
Thanks to a strong focus on cash management and lower spending on new equipment, debt was reduced by £41.1 million to £118.7 million giving the company the flexibility to invest into an upturn in demand.
ONE-OFF COSTS
Before taxes, amortization exceptional items the firm posted a profit of £8.6 million, although on a statutory basis it made a loss of £6 million compared to a profit of £23.4 million the previous year. This was partly due to the drop in revenues and partly to £13 million of extraordinary costs.
These included £1.65 million of restructuring charges, after the firm closed 23 locations and laid off 150 people, and £10.87 million of regulatory review costs, which brings total provisions for the CMA’s long-running anti-trust case to £15.37 million.
Finance director Allison Bainbridge described the provisions as meeting the firm’s worst-case scenario and ‘putting the company in control of the situation’ ahead of the CMA’s ruling, a date for which still hasn’t been fixed.
While the firm isn’t paying a first-half dividend, given its record earnings in the year to March 2020 and its much-improved cash position it has declared a special dividend of 22p per share in lieu of last year’s final payment.
ANALYSTS’ VIEWS
N+1 Singer analyst James Tetley called the dividend ‘further confirmation that the recovery has taken hold’.
On his reinstated earnings forecasts, VP shares trade on 13 times next year’s earnings which he believes ‘fails to reflect the group’s quality and track record over many years. A rating in line with the sector would suggest intrinsic value for the shares of £10.’
Paul Hill, analyst at Equity Development, also believes the shares are undervalued at 13 times next year’s earnings and believes fair value is more like 900p per share. ‘We believe the stock is attractively priced both in absolute terms and against its peers’, he adds.
