Investment: Hewden deaf to recession talk

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The Independent Online
DESPITE CONSTANT talk of recession, trying to get a British company to admit it will be affected by a downturn is a tricky. Most firms admit the environment is tough, but they all insist it is others who will suffer when the crunch comes.

The latest to trumpet this line is Hewden-Stuart, the plant hire group. Reporting a 17 per cent jump in pre-tax profits for the half to July yesterday, the company insisted there was nothing wrong.

Indeed, it went further. Recessions are good news, Hewden argued, as companies tend to hire rather than buy equipment in an attempt to cut costs. What's more, Hewden will benefit by taking business from, or possibly taking over, less robust competitors.

Is this long-term strategic vision or just an example of staggering corporate complacency? Only time will tell, but investors seem to be leaning towards the latter view. Shares in Hewden, which yesterday put on 2.5p to 137.5p, have lost a third of their value in the past four months.

Not that Hewden is doing anything particularly wrong. It has broadened its base from the construction sector to take in other industries, including the petrochemicals and transport. It has hived off all its peripheral businesses. And it is locking customers into longer contracts to reduce its exposure.

Nevertheless, plant hire remains a largely fixed-cost business: if customers stop renting equipment it sits there unused and profits can disappear sharply. Hewden shares, now on 12 times forecast full-year earnings, discount some of this, but until the outlook is clearer, any price recovery is unlikely.