Speedy Hire slips to a loss as it takes on additional costs

It is sometimes difficult to judge the dividing line between a set of results that management insists are ‘resilient’ but that on paper simply look poor.

Take Speedy Hire (SDY). Chief executive Dan Evans used the aforementioned ‘r’ word to describe half-year numbers that throw up few positives. Sales, profits and cash all moved the wrong way, and net debt keeps ticking up, pushing finance costs higher.

Granted, the company hasn’t faced the easiest trading conditions, but the same could be said of last year. Speedy has barely managed to break even on an adjusted pre-tax profit basis and its slide into a reported pre-tax loss was attributed to one-off costs related to its ‘velocity’ self-improvement programme. These were £2.3mn in the first half, and related to “incremental people costs”. The company also increased capex on its hire fleet by 65 per cent to £26.4mn, which management argued leaves it “well positioned” to deliver stronger growth in the second half.

The additional spend meant the company reported a free cash outflow of £1.6mn in the first half. House broker Peel Hunt expects Speedy to generate £9.6mn of cash for the full year, but thinks this will be eaten up by dividends. The broker argues that an “undemanding” valuation of just under seven times forecast earnings and a 20 per cent discount to book value provide increasing optimism for Speedy’s shares to deliver “differentiated growth and returns”. 

However, the company's patchy track record in recent years (the FactSet consensus operating profit forecast of £33mn this year is still £20mn below pre-pandemic levels) means investors might be better holding off until there is clear evidence that Speedy Hire's latest investments are delivering returns. Hold.

Last IC view: Hold, 29p, 19 Jun 2024