It's only been a few weeks since I covered Speedy Hire, and since I reckon there's a lot to be learnt from comparisons of similar companies, I'll be taking a brief look at Lavendon here, another plc. in the business of leasing out equipment.
A fair comparison?
The first thing that I need to address is really whether the comparison is fair. Are the companies similar? In what ways do they differ?
The answers to those questions are quite easy to find, though I suspect I lack the really detailed knowledge of where the smaller distinctions lie. A quick look at the markets they service shows the biggest differences, though. Lavendon focuses on access equipment. If I say 'cherry picker', you'll probably get the drift; though I've doubtless offended the more technical (a cohort which includes most of the population) as there's evidently a great deal of variety in that grouping. Speedy Hire seem to have a far broader remit, as providers of more general equipment to mostly construction and infrastructure companies.
I don't see them as being that dissimilar, though. They're in a close enough sector to be competitors, as acknowledged by Speedy Hire, and the two took part in a small joint venture (though maybe this is arguing for the opposite?). Regardless of sub-sectoral differences, the business model is basically the same - spend money up front, depreciate over a few years, take more in rental fees than the depreciation costs (and cost of capital). The timespan of depreciation deserves a mention here. Lavendon's fleet has an estimate useful life of 7-13 years. Speedy Hire's is similar, though starts at lower and is probably weighted considerably lower than Lavendon's. Either way, the timespans involved mean a significant amount of capex is necessary each year to maintain the same fleet size. This should make shifts from one subsector to another easier than might otherwise be the case.
Shifting Fortunes
If both companies can shift their fleets over time, and both have a good brand name - which seems to be the case - it strikes me that their valuations should be relatively similar. Perhaps not exactly the same - no two companies ever are, after all, but returns in each of the subsectors shouldn't be too divergent - Economics 101, if you can earn 20% returns leasing out X but 5% leasing out Y, more companies…
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