Less gloom at Hewden Stuart: The Investment Column

Hewden Stuart, the UK's biggest plant hire group, was in uncharacteristically chipper mood yesterday. Having been proved right with three doom-laden prophesies over the past 12 months, it is now seeing the first glimmers of the upturn which it forecast with some diffidence in April. This new- found confidence was behind yesterday's 7.5p rise in the shares to 143p.

But the figures for the six months to July show just how bad things have been since it first warned that the construction downturn would hurt the group. Pre-tax profits crumpled by a quarter to pounds 14.7m as turnover held fast at pounds 142m, an underlying fall of 4 per cent when acquisitions are stripped out.

Hewden is highly operationally geared. Its tough depreciation policy means that once its hire fleets reach a certain level of utilisation, virtually all the additional sales drop through to the bottom line. But the reverse is also true, so when rates dipped to around 60 per cent, as they did in the first half, the group suffered badly.

But as usual Hewden has acted fast in the face of recession, slashing its prodigious spending on new equipment from pounds 45m to pounds 23m in the six months. It now expects the year's outcome to be little different from depreciation, forecast at around pounds 38m.

Utilisation rates are now back up to the 65 per cent enjoyed in the second half of last year, with more optimistic noises being heard in the housebuilding sector and in the market for tower cranes. Hewden still remains heavily exposed to the much-pruned road-building industry and to work for Scottish local authorities.

Even so, the group is well placed for the expected upturn. One or two small acquisitions currently in contemplation should help fill in gaps in coverage of the south. In the meantime, full-year profits of pounds 29m would put the shares on a prospective multiple of 20. High, but probably justified by the prospects.