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Increased focus on smaller companies and services is paying off

Investors don’t need particularly long memories to recall the dark days of 2015 when Speedy Hire (SDY) issued two profit warnings in quick succession due to falling sales and rising costs.

In the space of a couple of months the shares went crashing from 76p to 28p, a loss of nearly two thirds.

The company moved quickly to appoint Russell Down as its chief executive and thus began its lengthy recovery.

Today Speedy Hire is in rude health as the UK’s leading tool, equipment and plant hire firm and now trades at 60.4p.

It operates via a network of over 200 local hire depots in the UK and Ireland as well as on-site facilities at client locations.

UK rental revenues are worth around £2bn a year as a sector but the market is highly fragmented. Speedy Hire has a 7% market share.

It has solid relationships with 85 of the top 100 contractors and while this was an advantage in the past the company is actively adding small and medium-sized customers, partly to reduce the risk of relying on big customers, as shown by the collapse earlier this year of Carillion.

Another reason for pushing into the small and medium sized market is that rental rates are higher. This means better margins and, as this is where the bulk of customers are, there is plenty of growth potential.


Speedy Hire has spent time, effort and money finding out exactly what its customers want and then has set about delivering it.

The number one priority for clients wasn’t price but availability, so Speedy Hire introduced a same-day service for orders received before 3pm.

It also used technology to analyse customer demand using its own records and then began a targeted sales and telemarketing campaign.

As the latest results show, this strategy is already paying off with group sales up 6% to £193m for the six months to 30 September 2018.

In fact revenue growth from small and medium-sized customers was more than enough to offset the loss of sales to the now-defunct Carillion.

Also the higher margins on renting to smaller customers helped lift pre-tax profit by 24% to £13.4m, ahead of analysts’ forecasts.

This in turn allowed the company to increase its interim dividend from 0.5p to 0.6p per share, which may be a modest increase but is still a sign that
the company has confidence in the future.


As well as using software and artificial intelligence to mine customer data and improve plant availability, it introduced a mobile app allowing customers to hire equipment without having to go into a depot.

This flexibility has helped drive up revenue and utilisation rates, which helps profit margins as kit sitting idle in the depot doesn’t earn the company anything.

The utilisation rate is currently 56% against 44% a couple of years ago but there is clearly scope to raise it further.


For the chief executive the key financial measure is return on capital employed (ROCE). This is a critical measure of the strength of a business.

From just 3.2% at the start of 2016 returns are already up
to 12.3% and are well on their way to the medium-term target of 15%.

As well as raising returns by increasing sales to small and medium-sized customers and improving the utilisation rate, Speedy Hire is growing its higher-margin service business.

Services fall into three categories: consumables like saw blades and drill bits, training and testing.

In the year to 31 March 2018 service revenue grew by 16%, faster than hire revenue, accounting for just over a third of group turnover. In the six months to September service revenue again grew faster than hire revenue.

The most interesting part of the service business is testing, inspection and certification (TIC) which is carried out by Lloyds British, a Speedy Hire subsidiary.

Lloyds is over 200 years old and developed the first standard for testing and certifying chains and anchors. It is now the UK market leader in certifying a wide range of industrial equipment.

Speedy Hire doesn’t split out Lloyds British in its results but TIC is a high-margin activity with firms like Intertek (ITRK) generating over 25% ROCE.

The UK TIC market is worth around £850m a year and related services could be worth another £600m putting the total potential market at £1.45bn a year.


Thanks to the cash flow from its hire operations and good working capital management Speedy Hire has a healthy balance sheet with minimal debt.

The chief executive is keen to grow this higher-margin TIC business and the half-year results state that the company will ‘capitalise on market opportunities through value-enhancing acquisitions’.

This is a smart strategy as acquisitions will give Lloyds British even greater benefits of scale in a market with plenty of growth potential.

We like the business but would hold off buying until there is more certainty on how Brexit will play out. There are too many uncertainties regarding the UK construction market as present. (IC)

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