Equipment rental firm Speedy Hire (SDY) offers that rare combination of growth and value. Sales and earnings are growing at close to 30%, and the firm has just raised its full year outlook, while the shares are trading on just 15 times this year’s earnings and less than 13 times next year.

The pace of the firm’s recovery from the pandemic has been remarkable, with earnings before interest, taxes, depreciation and amorisation for the six months to September almost back to the level of 2019.

The firm is winning new contracts and extending existing ones with construction groups like Costain (COST), housebuilder Redrow (RDW) and privately-owned infrastructure services company MGroup.

It is also improving its asset utilisation rate, that is the amount of time kit is out on hire, thanks to the use of artificial intelligence, mining its huge database of rental information for trends so that it always has the right equipment available in the right place at the right time.

A big driver of this year’s performance has been the ‘partnered services’ business, where Speedy uses its industry links to source and re-hire big industrial kit out to customers, from 1,000-tonne cranes to portakabins. As well as boosting sales, the services business raises the group’s margin as there is no ownership cost for the equipment.

Also, as well as pushing into the small and medium segment of the trade market, the firm has recently developed a retail business in partnership with B&Q, owned by Kingfisher (KGF), aimed at the home DIY-er. Trials have been so successful that the service is being rolled out from 16 stores to a further 23 in the second half of the financial year.

Again, the retail business has higher margins than the trade business which all goes towards generating improved cash flow and earnings.

Although we don’t think of Speedy as an income stock, there’s a strong suggestion from management that total returns could rise considerably over the next few years.

While the firm still needs to invest in new equipment, and in particular carbon-friendly products as it works to bring down its customers’ emissions, it has a healthy cash balance and leverage is just 0.7 times.

It returned to the dividend trail this year and the board has said during 2022 it will ‘consider returns to shareholders of any capital in excess of the group’s needs consistent with its capital allocation policy’.

The main risk investors need to weigh is a resurgence of Covid amid the emergence of the new Omicrom variant, though the impact on the construction sector is unlikely to be as acute as in the early stages of the pandemic.

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