Companies: SDY   

Note the jump in Speedy Hire shares today. After a one-way bear market since July last year that brought the value of Britain’s number one tool and plant hire business down to just £350 million at its low point, there was a sudden burst of buying to lift the shares 19p to 747p. That, I am told by traders in the know, reflects talk of an imminent bid in the wings. A leading investment bank is understood to be compiling a major dossier on Speedy to facilitate the financing of a £500 million-plus takeover.

Now talk of this kind could be down to stale bulls desperate to get a better price than has lately been available in the market. I doubt it. Speedy is a very tempting target. Its consistent growth over 20 years has been remarkable. Recent progress has been little short of stellar.

Last year’s £115 million acquisition of Hewden Tools not only cemented its position as the leading player in the tool and plant hire market but diversified its customer base away from the construction industry and into the industrial and local authority markets. With more than 540 depots, Speedy now has a lot of added scope for cross-selling and rationalisation. It is targeting £20 million of synergy benefits.

Last year, Speedy recorded profits up 26 per cent at £40.5 million pre-tax and earnings per share of 65p. At the half-way stage this year it lifted its earnings by 29 per cent to 35.6p. It is apparent the shares are selling on little more than a single-digit multiple. True, the business has high debt-to-equity gearing. But at the time of the Hewden takeover, Speedy placed out more than £50 million of new shares to institutions keen to pay £12.50 a time. There is a wealth of assets, and a customer roster of over 100,000 accounts gives it tremendous resilience in a downturn. Importantly, house builders make up a very small part of its customer base.

A prospective predator would also know that several external factors will continue to drive growth at Speedy for some years to come. One is the impact of legislation as more and more regulations aimed at improving building site safety and better tool usage combine with environmental pressures to drive the hire market forward. Another is the fact that much of Speedy’s money is made at the smaller end of the market – in not just tools but small cabins and portable toilets. Many of these items can stay on a site for years.

Lastly, there is the big boost that will come from the Olympic building programme in East London. This will not be affected in any way by changing economics and it promises to sustain demand for Speedy’s hire fleet for several years.

Whether the rumours of a bid will bear fruit I cannot say. But the share price jump does suggest the market has woken up to the value of the business after a six-month period in which its shares have almost halved. Pick up a few.

Speedy Hire	LSE	£90.97m	178.50p	-7.50p
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