Insider: chiefs load up on shares tipped to double

Economic turbulence and leadership upheaval has dumped shares in this small-cap to post-Covid low, but management is optimistic and City analysts think they’re ‘materially undervalued’.

A “materially undervalued” Speedy Hire (LSE:SDY) has been given £80,000 of boardroom backing after the FTSE All-Share company reported continued strong levels of customer activity.

David Shearer, who has been chairman since 2018, spent £60,700 on shares at just over 40p on Wednesday before interim finance director Paul Rayner made an investment amounting to £20,000 the following day.

The shares are down by more than a third this year, reflecting the impact of economic turbulence for stocks across the building supplies sector and uncertainty caused by Speedy’s recent leadership upheaval.

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Chief executive Russell Down left at the end of September after seven years with the Merseyside-based equipment hire firm, while James Bunn stood down as finance boss at the start of this month.

New boss Dan Evans knows the business well after 14 years with the company, most recently as its chief operating officer. His first set of results struck an optimistic tone last week as he reported Hire revenue growth in October and November of about 6%.

This performance reflected new contract wins, as well as actions taken on price and a healthy pipeline of customer activity.

Joint house broker Peel Hunt said there were no major surprises in the results, which showed revenues up 13.8% to £212.4 million following growth of 5.5% in the Hire division and 29% from fuel and energy services.

Pre-tax profits of £13.2 million were down 7.7% due to inflation’s impact on costs and recent investment into growth initiatives. A 6.7% higher dividend of 0.8p a share is set to be paid on 20 January, while a strong balance sheet means a £30 million buyback programme announced by the company in January is now more than half complete.

What the brokers say

Peel Hunt continues to expect full-year earnings per share of 5.3p and a 11% rise in pre-tax profits to £33.5 million, adding that the operational background of the new chief executive boosted hopes for further efficiencies.

Trading on 8.2 times forward earnings, the broker believes the shares are “materially undervalued” given the earnings growth and outlook for return on capital.

Its price target of 80p is matched by counterparts at Liberum, with the joint house broker believing there are several differentiators that the market may have missed in sending shares down in line with the rest of the building supplies sector.

These include strong prospects in the infrastructure sector, having been involved on mega projects such as Crossrail, Hinkley Point, Thames Tideway and now HS2.

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The company serves 88 of the UK’s top 100 contractors but has also penetrated the consumer DIY market through a partnership with Kingfisher-owned B&Q.

Liberum believes the shares should outperform if infrastructure activity remains strong, adding that the company’s lowly valuation suggests that the downside caused by the deteriorating economic outlook is in the price.

The company, which opened its first depot in Wigan in 1977 and listed on the London stock market 30 years ago last month, closed on Friday at 40p.

Sound of success?

The aftermath of half-year results also provided the moment for boardroom buying at AIM-listed musical instruments retailer Gear4music (Holdings) (LSE:G4M) on Thursday.

Chief executive Andrew Wass, who was a sound recording engineer when he set up the business in 1995 to supply recording studios and educational sites, took his stake to 22.8% with an investment worth £25,500.

His purchase was made at 102p, a level that compares with around 900p seen after a huge surge in demand triggered by Covid lockdowns.

The York-based company, which has bases in Sweden, Germany, Ireland and Spain, sells own-brand musical instruments and music equipment alongside third-party brands including Fender, Yamaha and Roland.

The past year has seen much tougher trading conditions, with cost inflation pressures, weakening consumer confidence and a summer heatwave contributing to the shares falling back to 90p at the start of last week.

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On Tuesday, Wass announced a 44% drop in underlying earnings to £2.7 million and net loss of £1.1 million after revenues lifted 2% to £66.3 million in the six months to 30 September.

A 10% rate of growth in Europe offered encouragement, however, and the group has seen a “consistent improvement” in trading momentum in the last two months as it heads into the peak festive period.

Shares closed Friday’s session at 107.5p after Wass said he was confident of meeting City forecasts for full-year revenues of £155.1 million, underlying earnings of £8.9 million and pre-tax profits of £1.1 million. It made a bottom-line surplus of £5 million in the last financial year, down from £14.6 million the year before.