Interactive Investor

Insider: director money backs recovery at two small-cap firms

Both these companies have struggled in recent years, but insiders have been picking up cheap shares. Graeme Evans also runs through what the analysts think.

15th April 2024 09:01

by Graeme Evans from interactive investor

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Optimism that struggling Speedy Hire (LSE:SDY) Hire shares are about to turn a corner has been given boardroom support after three directors made investments worth £63,000.

The purchases by finance boss Paul Rayner, chair David Shearer and non-executive Shatish Dasani were made after the Merseyside-based tool and equipment hire company said results for the year to last month would be towards the lower end of expectations.

The update left shares near a decade low at 24p, despite Speedy’s confidence in a better year ahead given recent contract wins and the support of its five-year transformation programme.

It pointed out that it had secured additional annual turnover in excess of £40 million across multi-year contracts with new and existing customers.

Whilst these have been slow to mobilise and only provided marginal benefit in the 2023/34 financial year, they improved the growth outlook for the current year and beyond.

Speedy added: “This new business has been secured with continued pricing discipline and demonstrates the attractiveness of Speedy's customer offering.”

Broker Peel Hunt responded by cutting its profits forecast by £3.5 million to £16.5 million for June’s annual results and trimming its forecast for the current year by 7% to £25 million.

However, it reiterated a price target of 60p and said that shares trading on 6.3 times forward earnings and a 35% discount to asset value offered “substantial value”.

The broker said 2024 was always likely to be a challenging year given market headwinds and Speedy’s focus on price discipline. It added: “This returns discipline, valuable contract wins and strategic actions to differentiate provides increasing optimism for growth and returns.”

The FTSE All-Share company, which operates from 180 fixed sites and selected B&Q stores, is currently in the efficiency phase of a programme aimed at building a sustainable hire business.

In recent months, however, the company has been impacted by a drop-off in activity in its regional bases, as well as slower demand for seasonal products due to the mild winter. This left revenues for the year down by about 5% to £420 million.

Joint broker Liberum cut its target price to 47p from 54p following the update but said the valuation looked to be attractive given the recovery outlook. It has stuck by its forecast for a reduced full-year dividend of 1.7p a share, leaving the shares yielding about 8.6%.

Liberum is encouraged by the potential of green energy initiatives, such as battery storage units and the hydrogen power joint venture with AFC Energy, and notes the opportunity for Speedy’s testing inspection and certification business to double revenues.

The broker adds that the company is highly operationally geared, which should start to work in Speedy’s favour as the backdrop improves.

The shares closed last week at 25.2p, having fallen from 75p three years ago. It opened its first depot in Wigan in 1977 and listed on the London stock market more than 30 years ago.

How fast can this company rebuild?

Shatish Dasani followed his £20,000 purchase of Speedy Hire shares by disclosing a move of similar size at SIG (LSE:SHI), the building supplies firm where he is also a board member.

The investment involving the former Forterra and TT Electronics finance boss took place on Friday at a price of 28.8p.

Like Speedy Hire, the shares have suffered in the challenging market conditions and are down by about a third in the past year.

Recent 2023 results by the pan-European insulation and exterior products specialist showed like-for-like sales down 2% for slightly higher revenues of £2.76 billion.

Operating profit of £53.1 million fell from £80.2 million in 2022, as cost actions partly offset the impact of operating price inflation and subdued market demand.

The group expects the tough conditions to continue this year, but has pledged to use this period to position SIG for higher margin growth and performance in the medium term.

Peel Hunt trimmed its price target from 41p to 37p after last month’s results, having lowered its forecast for this year’s profits by £10 million to £4 million and by £11 million to £27 million for next year.

The broker added: “While the group has been making progress operationally, with the UK structure in particular being simplified, market conditions remain challenging across nearly all of the group’s geographies.”

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