Good morning!

There's only one share that interests me this morning, Lavendon (LON:LVD) , so let's crack on with that.

Lavendon (LON:LVD)

Share price: 134p (up 7.2% today)
No. shares: 169.9m
Market cap: £227.7m

(at the time of writing, I hold a long position in this share)

Interim results, 6m to 30 Jun 2016 - this is an equipment hire group, operating in UK, Europe & M.East. Its niche is powered aerial access equipment - the website is quite interesting, showing all the different types of product which Lavendon hires out. It claims to be the market leader.

What interests me is that the valuation seems compelling, compared with other hire companies;

  • Forward PER is only about 6.5
  • Dividend yield is almost 5%, 3-times covered.
  • It has a strong balance sheet.
  • Equipment hire companies are often on a rating of about 2x NTAV. In this case, the latest NAV figure announced today is £237.9m. Deduct goodwill & other intangibles of £51.7m, arrives at £186.2m NTAV. So 2x NTAV (a fair rating, in my opinion), would give a valuation of £372.4m, or 219p per share - which is my reckoning of where the shares probably should be now. That's a very attractive 63% potential upside, if I'm right about this.
  • Consistently meeting market expectations, yet share price has fallen considerably - this doesn't make sense to me. The market is clearly expecting a big downturn in earnings, but there doesn't appear to be any evidence at all to suggest that is happening, or likely to happen.

Looking at today's interim results, the only surprise is a big increase in the dividend - up 18% - so clearly management are confident.

Forecasts - Peel Hunt is forecasting 18.7p for 2016, and 19.4p for 2017. However, there is possible upside on these figures, because they have not factored in favourable forex movements. Over half of revenue, profit & cashflows are generated outside the UK.

Outlook - there is more detail given, but the key part says;

Trading since the half year has continued to be in line with our expectations and, whilst mindful of the recent increased economic uncertainty, the Board remains confident of making further progress in the second half and delivering on its expectations for 2016.

That sounds reassuring. I wouldn't be surprised if they deliver full year results ahead of forecast, given the forex tailwind. So…

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