Market Commentary - Housing, Infrastructure, Construction and Services 7th April 2017
Vp, formerly called and still better known on some places as Vibroplant, has announced a trading update and an acquisition. Homeserve was the best riser, up 1.8% at close at 633p, gaining even stronger support in the afternoon after a good morning’s work, suggesting positive US investor interest. Berendsen and Mitie were the joint backmarkers, down 2.9% and 2.5% respectively.
Vp, formerly called and still better known on some places as Vibroplant, has announced a trading update and an acquisition. In terms of trading the year to end March was positive and in line. Trading conditions in the last four months were said to be positive, which is consistent with other data sources. The read across to Speedy, A Plant, and HSS is therefore positive and it tells us that construction activity was also good. The weather was quite mild in Q1’17 so there is no reason to expect that to have been a negative factor. The Vp acquisition of Jackson Mechanical Services for £3.6m cash appears to be a small bolt on. Companies House data provides us with limited help as the business has small company’s exemption and Vp provide no trading data. The latest Jackson balance sheet showed £10m of tangible assets at end 2015 and shareholders’ funds rising by near £0.5m to £1.5m at the period end from end 2015. The company added £6.5m of tangible assets in 2015 to the existing depreciated amount of £7.8m which looks like a large expansion to outsiders, like us with little detail. Drawing any conclusions would be guesswork but the data available suggests the business was profitable in 2015 but the massive capital addition might have been a problem in 2016. It also indicates that Vp might be more helpful regarding what it has actually bought as the available data is inconclusive. Of course, a lot may have changed in 2016.
Homeserve was the best riser, up 1.8% at close at 633p, gaining even stronger support in the afternoon after a good morning’s work, suggesting positive US investor interest. The customer reviews on web are real marmite with customers at one end on the spectrum or the other and naturally those most agitated to write a review are the complainers. The point is that it’s easy to see that a company such as Homeserve, with considerable dependence on third party suppliers, mostly tradesmen, is going to find variable performance. But the mix of such dependence, allegations that it is marketing insurance for stuff that does not need insuring and retains only 80% of its customers each year just tells us that it will unwind at some point. The move to buy Chackatrade and adopt digital technology we understand though such technology progress is still in the early days. Homeserve’s track record of managing businesses outside its mainstream is poor.
Berendsen and Mitie were the joint backmarkers, down 2.9% and 2.5% respectively. The recent issues at both companies are bound to cause some share price volatility. So views should not alter. Berendsen seems to have initiative overload and needs to show some results from its festival of improvements. Mitie just needs to clear up any remaining accounting issues, show greater accounting transparency and the costs of rebasing the business. It can then move on; it seems to have retained its main customers and contracts and, though wins have been scarce they were not the priority in the last six months. Our view is that it will need a large write-off, most of which will be non-cash as we have been told that it does not have excessive commitments to customers within contracts (which was an issue at Serco). Where the price will end on the day of the results in part depends on the severity and nature of the write-offs (which will indicate whether an equity fund raise is needed and we suspect it will not need one). The opportunity to create is £2bn a year revenue business with 4-5% operating margins and around 5% pa growth is clear and is worth investors’ attention, given the existing contracts and operational structure which was far from being all bad!
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