Hewden waits for plant hire heaven: The Investment Column

Hewden Stuart's figures for the year to the end of January show the full impact of a hostile trading environment in which plant hire firms geared up for a surge in demand which failed to materialise. Pre-tax profits fell 19 per cent to pounds 29.45m while earnings per share slipped 17 per cent to 7.53p.

On the hire side turnover only edged up 5 per cent to pounds 187.5m. Margins were eroded and profits fell 15 per cent to pounds 28.45m. Sales were even worse, with the bulk of construction equipment now being sold to plant hire businesses instead of through agencies to the construction industry. Divisional turnover fell 10 per cent to pounds 89m and the contribution to profits fell to just pounds 1m from pounds 2.7m in the previous year.

But the final dividend makes 3.2p for the year, up from 3p. This reflects chairman and chief executive Sandy Findlay's firm belief that the outlook is improving, as the construction industry responds to an upturn in housebuilding and commercial building. He also thinks more contractors will follow Kvaerner's lead and get rid of their plant hire subsidiaries to concentrate on what they do best. According to Mr Findlay, customers are looking to forge long-term relationships with those plant suppliers who can provide the necessary standards of service.

The City took heart from the thought that 3 per cent growth in the construction industry would create a much kinder environment, increase capacity use and quite possibly push up hire charges. In a business where every extra pound of turnover converts into 60p-65p of extra profit, this ought to be plant hire heaven.

Brokers' forecasts for the current year have moved up from an average pounds 36m to nearer pounds 38m, equal to up to 9.4p of earnings. The shares rose 13p to 139.5p, pricing them at just over 15 times prospective earnings, which looks high enough for an industry where new capacity can be quickly added.

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