LON:VP. | VP Plc - One To Hold For The Recovery?

31st May '09 by Via Lactea

8 comments 4179 reads

Basics

Support Services Sector, provider of equipment and associated services to construction, civil engineering, oil and gas, rail, housebuilding, events, facilities management and transmission sectors.

Approximately 42 million shares in issue. Current sp £1.47, giving market cap. of about £62 million.

Over half of the equity is controlled by Ackers P Investment Co. Ltd.

VP's 2008/9 Preliminaries

Released on Friday, 29 May 2009.

http://miranda.hemscott.com/servlet/HsPublic?context=ir.access&ir_option=RNS_NEWS&item=155467078701855&ir_client_id=657

These results will have come as a relief to any VP share holders who had read the Speedy results two days earlier. Speedy had over extended itself with acquisitions ahead of the downturn. Its debt level was too high and it announced a deeply discounted rights issue. In contrast, VP was run more conservatively and has exposure to some different end-markets, giving it some protection. The upshot was that Speedy reported a loss per share of 107p, whereas VP reported a profit of 36p per share.

Latest Company Presentation

Link can be found here ....

http://www.vpplc.com/page/investorrelations.htm

The $64 Million Question

How bad will the UK recession be?

Reading the latest presentation suggests that the markets for about half of VP's turnover will worsen in the current year and the markets for the other half will be roughly stable. Three of the four covering brokers updated their forecasts on Friday ...

http://www.vpplc.com/page/investorrelations.htm

They are looking for an eps of about 29p. That would put VP on a forward p/e ratio of about 5. If there is a weak recovery in the UK, commencing about the end of 2009, then the current year may be as bad as it gets for VP. If that turns out correct, then a p/e of 5 and dividend yield of about 7% should make this a buy at its current level.

The Company has manageable borrowings (details in the presentation) and is focussing on cash management this year (but who isn't?!). Presumably there will be no acquisitions this year (£6.6m last year) and no share buybacks (£3.0m last year). Also investment will be reined in. Net debt stood at £66m and operating cash flow was £35m last year. If investment is reined in and the operating performance goes anything like the brokers expect, then debt should not get any bigger and could reduce. They have headroom, anyway.

The shares hit a high of about 440p in October 2007. At 147p they are very out of favour. …

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MrT

1st Jun '09

Looks interesting - I don't know it but will take a closer look and report back with any thoughts.

It's certainly interesting to see the contrasting fortunes of Speedy (£SDY) and VP. Once the right issue issue is away, though, won't they continue to be a thorn in VP's side? I know Speedy is bigger - any idea of the relative market share between the two?

As you recognise, this is a cyclical stock given the end user markets to which it is exposed (53% construction & civil engineering!) - personally, I don't believe "the worst is all over" theories for the reasons just articulated by Coleyfish here (http://www.stockopedia.com/forum/view/29188/current-global-position) and many more besides, so I am unlikely to take the plunge on this one I think.

Still, one for the watchlist!

http://www.telegraph.co.uk/finance/newsbysector/constructionandproperty/5401390/Speedy-Hire-plans-100m-rights-issue-to-cut-debt.html

Via Lactea

2nd Jun '09

The PIMCO Secular Outlook is a good read. Thank you.

Agree, it could still be early days, and when the recession ends there may not be much of an uplift in UK economic activity (debt servicing/repayment costs will be an issue).

On the other hand, when it looks safe and sensible to invest in companies like VP, their share prices will (I hope!) be well above current levels. Holding here, I have to hope that there will not be a second dip to the recession.

Certainly VP carries higher risk at this point in time.

Come the end of 2009, you may be saying, "Told you so!" ;-) )

Shocker

8th Nov '10

17 months later with a somewhat improved economic outlook, and the modest P/E rate and hefty dividend yields still appeal, while earnings seem to have weathered the last 3 years' turmoil very well, yet VP trades only a little higher than when Fleeced wrote this originally... are you still a holder Fleeced? I'm very close to buying in, seems like a great value stock.

Any other opinions?

Hi Shocker.

I'm still holding.

The finals included a word of caution from the chairman regarding possible effects of public sector cuts.

I'd guess the interims (to be released at the end of this month) will be similar to last year's. The danger is that the outlook for VP. worsens. The cuts may see revenue fall somewhat in the second half and there may be some margin pressure.

I don't see any big negative and the dividend should be maintained.

For the patient (and assuming no double dip recession), VP. could be good value here at 165p. But it may go cheaper and the recovery in VP.'s markets may be a couple of years away.

I suppose the question is, "Are there better places for new money?"

Are there other reasonably rated investments (p/e 10 or lower), without excessive borrowings/pension deficits serving healthier end markets?

Thanks for your reply. Not the best person to answer your question at the end, but I've recently bought Hill and Smith and Catlin Group (LON:CGL) , each on a rough value basis - be glad to hear anyone's thoughts on these, too.

I am probably the mildest of the mild bulls at present regarding both UK economy and equities. Of course VP will slide downwards with the rest if the recovery stagnates or reverses but would you expect it to weather less well than last time?

I would expect VP. to be OK.

An updated outlook is about three weeks away.

VP. has some defensive qualities (eg. supplies for water capital programmes, rail work and oil/gas). It's the exposure to contracting (and housebuilding in 2011?) that might be problematic.

I don't know enough about insurance to comment on Catlin. Hill and Smith again sell into public sector and construction, so could be affected by the cuts.

When eventually the economy is seen not to be at risk anymore, these shares should be higher. I suppose it's a case of either taking a bigger risk now for an expected greater return, or waiting till things look more certain but rewards are less.

Anyway, whatever you decide, I hope it goes well for you.

Thanks for your comments. I just typed a much longer message and somehow failed to post it :'(

VP looks a great fairly low-risk mix of defensive, value and income to me. Ideal as I see the world economy and equities stuttering for the next couple of years.

VP plc - one to hold for the recovery?

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Via Lactea

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