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November 2008
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In the grip of fear
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Executive Hire News › Archives › November 2008 › City News : In the grip of fear

City News : In the grip of fear

Catherine Stratton assesses the latest Stock Market news.

The past month has seen unprecedented intervention by national governments to prop up the banking system, but it has not allayed fears of global recession. The UK Stock Market has continued its roller coaster ride; hire shares have remained under pressure. Mid-October saw Aggreko, Ashtead and Speedy all hitting new ‘lows’. Since then we have seen the Aggreko share price rally in the wake of its strong trading statement; Speedy has seen little improvement in its shares, while Ashtead’s have strengthened.

Speedy’s cautious trading statement, ahead of its half year results to be announced on 26 November, brought no relief for the depressed shares as the company indicated that profit before tax (and amortisation costs) would be ‘broadly in line with the prior year period’. The company described current trading as ‘satisfactory’ but, because of the increasing uncertainty of the construction market, ‘the forward outlook had become unusually difficult to forecast’.

Speedy’s Finance Director Justin Read stresses, however, that there is currently still a lot of work with activity levels continuing to be “reasonably good.” He states that there had not been any erosion of prices; the increasing prevalence of longer term supply contracts was helping to stabilise hire rates. The results of Speedy’s policy of securing such contracts is seen in the 43% increase in revenues from its top 50 construction and industrial clients in the five months to August; these customers now account for 28% of Group revenues. The growing emphasis on larger customers should not only help to sustain revenues, but may also give some protection against bad debt, where Justin Read indicates the company has not seen any discernible upturn so far.

Speedy expects first half revenues to have grown by 22% over the same period of last year, which suggests a figure of £255m, very similar to revenues in the second half of 07/08. The company indicated that revenues from its two principal division of Tool Hire and Equipment Hire would be up by 21% and 25% respectively. Inevitably, recent months have seen Speedy implementing cost reduction and cash management measures to meet the challenge of the present uncertainty. By the end of September, the number of employees had fallen by 4% and capital expenditure plans for the current financial year have been cut back to £75m, compared with initial forecasts of £100m-110m. Net debt at the end of September was £280m, against committed bank facilities of £325m. Speedy is targeting to reduce its net debt by the end of March 2009 from the position of £255m at the beginning of this financial year.

The Speedy statement concludes by saying, ‘…at this stage, despite a more challenging trading environment, the Group considers that it can utilise its operational and financial flexibility to remain in line with its expectations for the full year, subject to no further deterioration in the outlook for its end markets.’

AGGREKO PERFORMS ROBUSTLY

The latest trading statement from Aggreko indicates that the company is continuing to perform robustly; revenues in the third quarter of this year were 39% ahead of those of the same period of 2007 (30% up in constant currency terms). This is rather above expectations and was bolstered by storm-related revenues in North America. The company also indicated that the full year profit before taxation is likely to be at least 50% higher than last year’s £124m. The strength of this statement renewed market confidence in the shares, which had been under sustained pressure ahead of the announcement.

Andrews Sykes’ interim results show a strong performance by the pumping and heating specialist. The company said that its pumping division had benefited not only from the ‘unusually wet conditions’, but also from the deliberate decision to enter into longer term contracts. The poor summer in the UK and Northern Europe did little to stimulate demand for the company’s air conditioning hire activities but Chairman JG Murray states that ‘management initiatives and the move to less weather related products continue to be effective’; he and his fellow directors anticipate that the second part of this year will be line with the same period of 2007. •

 

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