Investment: Strategy pays for Lavendon
Tuesday 25 August 1998
Lavendon's strategy of staying away from low-margin construction work and focusing on shorter-term maintenance hire to supermarkets and large City banks, has also produced handsome growth in profits and turnover. Yesterday's interim results, with profits up 53 per cent to 2.4m and turnover 60 per cent higher to pounds 14.7m were a case in point.
This meteoric rise has been mirrored in the share price, which touched a 12-month high of 545p in April, almost four times higher than the float price of 140p.
But can Lavendon go any higher? The answer is not in the short-term. The widely-predicted economic slowdown in the UK is set to hit the market for "powered access", which has been growing at 10 per cent-plus in recent years.
With more and more firms likely to postpone or scale down their maintenance programmes as the recession starts to bite, Lavendon's margins will come under pressure and growth will be restrained.
The company is trying to expand outside the UK, with forays into Germany and the Middle East, but 85 per cent of its business still come from these shores.
The market's nerves about Lavendon's prospects are starting to appear and yesterday the shares lost 171/2p to close at 420p. But even after this 4 per cent slide the stock is trading on 21 times expected earnings of around pounds 6.5m.
At such a premium to the market, Lavendon is no more than a hold.
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