MIDAS SHARE TIPS: Speedy Hire has the tools to stage rapid recovery under new boss after Middle East accounting fiasco
In 2007, shares in equipment rental group Speedy Hire were trading at the equivalent of 360p. By November 2009, the stock had crashed to below 33p, hit by a combination of too much debt and too little business.
Well regarded in the construction industry, Speedy has worked on some of Britain’s most high-profile projects. Its equipment has been used to build London’s Shard and Crossrail project, and to repaint the Forth Bridge.
But just as the group began to recover from the economic downturn, major accounting irregularities were uncovered in its Middle East business. That was 15 months ago. The chief executive resigned and the finance director and chairman followed.
Breakthrough: The hire firm has provided equipment for London’s Crossrail project and the Shard
Today, there is a new management team, headed by Mark Rogerson, who started as a serviceman with the RAF, became managing director at construction firm Costain and was awarded an MBE for services to the public sector.
The shares are now 69½p and should make headway as Rogerson puts the Middle East fiasco behind him to implement plans for growth.
When Rogerson joined a year ago, the UK business – responsible for 95 per cent of sales – was trading below par. Rogerson issued a profits warning and set to work.
Speedy Hire’s clients include all the major international building and infrastructure groups in the UK, but it also operates on a smaller scale, working with several thousand national construction firms. Once, it was a big player in the local hire market too, but has lost ground.
Rogerson is keen to improve efficiency and availability across all sectors so large customers hire more, mid-sized customers increase in number and rent more equipment and smaller customers return to the fold.
To that end, Rogerson is setting up distribution centres, so depots carry less stock but can access more. He is improving the speed with which equipment is maintained and renovated. And he has carried out an exhaustive survey of what each depot stocks, compared to what customers want. This has shown that the group owns a range broader than necessary and has far too many items of each product.
Slimming down will not hurt customers, but will drive down costs and improve Speedy Hire’s profitability. Brokers are forecasting a 37 per cent rise in pre-tax profits to £20 million for the year to March, rising to £24 million next year.
Despite recent woes, the group pays a dividend, expected to increase by almost 10 per cent to 0.7p this year and to 0.8p in 2016.
Over the past 12 months, the firm has withdrawn from general hire in the Middle East, selling off surplus equipment and focusing on the oil and gas industry there. The Middle Eastern arm of the firm should start to make money in the next year or two and is likely to be sold.
Midas verdict: Rogerson is determined to return the business to health and the shares should respond as he proves he can deliver. At 69½p the shares have real potential. Buy.
Traded on: Main market Ticker: SDY Contact: speedyhire.plc.uk or 01942 720000
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