This penny share just crashed 13% to 19p! Time to buy?
Speedy Hire (LSE:SDY) is a penny share that’s speedily losing market value. As I write today (2 April), it has slumped 13% to 19p, bringing the decline since August to 40%.
Over five years, the stock’s down 70%!
Recently, I’ve been scouring the small-cap landscape for potential bargains as a lot of these shares have sold off. Is Speedy Hire now a potential buy for my portfolio this month? Let’s discuss.
Weak market conditions
Speedy Hire calls itself the “UK’s leading tools and equipment hire services company, operating across the construction, infrastructure and industrial markets“. While I’d have assumed that title belongs to Sunbelt Rentals, Speedy Hire has a huge presence in the small tool segment.
The catalyst for today’s sell-off was a trading update from the equipment hire firm. For the year to 31 March, it expects EBITDA to be around £90m. Unfortunately, that will be below the £97.1m it reported the year before.
The company blamed worsening trading conditions through the fourth quarter due to the uncertainty caused by the UK Budget in November and lately the Middle East war. This led to “certain customer-led delays, affecting hire and service revenues, which are now expected to impact positively in the near term“.
In better news, Speedy highlighted a commercial agreement with Proservice Building Services Marketplace (ProService, formerly HSS Hire) during the year. This will âprovide Speedy Hire customers with greater choice and an enhanced service, while providing ProService customers the ability to indirectly access our national network, larger equipment fleet and faster delivery capabilityâ.
Management says this win-win deal will generate £50â£55m of annualised revenue, once up and running. So that’s something to look forward to.
Meanwhile, its ambitious five-year transformation strategy (âVelocityâ) to capitalise on public infrastructure projects is still in place. By 2028, it’s targeting £650m in revenue, up from around £440m last year (before today’s update). The EBITDA margin target for then is 28%.
Should I take a punt?
The question now is, are these targets achievable in light of the deteriorating trading conditions? I’m not sure.
The construction sector is being battered by rising inflation and interest rate uncertainty. UK economic growth remains anaemic, and we still have inflation from the Iran war to work its way through the system.
I note brokers are downgrading their profit forecasts, with Panmure Liberum now anticipating a small underlying pre-tax loss for the year to 31 March.
As a result, I don’t think the dividend can be relied upon (the interim payout was cut back in November). The company’s dividend track record has been very hit-and-miss.
Another worry I have here is that net debt is expected to total around £159m for the year. Considering Speedy Hire’s market cap is only £89m, and it might now be swinging to a loss, that debt puts me off.
Then again, Speedy Hire is an asset-heavy company, with £227.7m in plant hire equipment (diggers, tools, generators, etc). And the price-to-tangible book value now is around 0.85, which looks low.
As such, deep-value investors might want to dig into this 19p stock. But with the outlook for the construction industry still weak, I don’t feel it’s a good fit for my portfolio.
Weighing things up, I see better small-caps out there today.
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Ben McPoland has no position in any of the shares mentioned. The Motley Fool UK has recommended Sunbelt Rentals Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
