Equipment rental specialist VP Group (VP.) reported record profits after tax, amortisation and exceptional items, but before adjustments for leases, of £47.1m for the year ended 31 March. Meanwhile return on capital employed remained a healthy 14.5%.
However the shares eased 2.4% to 781p on the news that a decision on whether to pay the final 2019 dividend would be postponed until later in the year.
Chairman Jeremy Pilkington called the results ‘very satisfactory’ given the uncertain UK economic backdrop for the majority of last year with Brexit negotiations repeatedly delayed and the general election.
OPERATIONALLY SOLID
Like many firms, VP was expecting a decent increase in demand post-election but instead the coronavirus crisis led the government to shut down most of the economy.
It was able to keep many of its locations open for business but at the peak of the lockdown in April around half of its UK employees were furloughed.
Most branches have since reopened and furloughed staff have been able to return to work as demand has recovered, following the decision to allow construction and house building to restart.
Encouragingly, the Sandhurst acquisition in May of last year has traded ‘satisfactorily’ in its first year as part of VP’s Groundforce division.
Also Torrent Trackside and Brandon Hire were successful in renewing their exclusive contract with Network Rail for rail plant and tool hire for at least another six years from this April.
UNCERTAINTIES REMAIN
However, due to the ‘exceptional circumstances of Covid-19’, the firm has decided to delay a decision on its final 2019 dividend until later in the year when it hopes to have better visibility.
‘We appreciate that income is of vital importance to shareholders and we intend to restore normal patterns of distributions as soon as possible’, said Pilkington.
Also unresolved is the year-long probe by the Competition and Markets Authority (CMA) into anti-competitive behaviour in the temporary groundworks sector.
In April last year the CMA announced that it suspected three firms - Trench Construction Systems, Mabey Hire and VP Group - of colluding over pricing. The allegations came to light after Mabey blew the whistle, meaning it will not be fined.
The CMA’s findings are still provisional, and VP has taken a £1.5m provision due to ‘business restructuring and regulatory review costs.’
N+1 Singer analyst James Tetley believes VP is well positioned to benefit from a recovery in the construction market and although the timing is unclear earnings should recover making the shares ‘excellent value’ at today’s price.
