22.01.2025
In a week’s time, on Wednesday 29th January, the UK’s largest ground engineering contractor that is focussed upon the housing and infrastructure markets, will be reporting its Interim Results for the six months to end-October 2024.
On the face of it they may well look slightly daunting, as the business has been mired in somewhat challenging conditions across its various sectors.
However, I take the view that now could be just the right time to tuck away a few Van Elle Holdings (LON:VANL) into your portfolios because this group is on the move.
The Business
This company, which was established way back in 1984 and only went public in 2016, is today the UK's largest specialist geotechnical engineering contractor.
It provides a wide range of ground engineering techniques and services including ground investigation, general and specialist piling, rail geotechnical engineering, modular foundations, and ground improvement and stabilisation services.
The business operates through three divisions: General Piling, Specialist Piling and Rail, and Ground Engineering Services.
It is focused on diverse end-markets including residential and housing, infrastructure and regional construction - across which the group has completed more than 20,000 projects over the last 35 years.
Recent Trading Update
On Thursday 12th December the group issued a First Half Trading Update for the six months to end-October 2024.
It noted that revenues were some 5% lower at £65m (£68m), with market conditions having continued to be ‘challenging across all sectors’.
The company stated that its workload had been subdued in Rail and Highways and continued to experience project delays.
The impact of the Building Safety Act had caused delays to start dates of taller residential schemes, however encouragingly, the new build housing sector had continued to recover, with a strong pipeline of work planned for delivery throughout the second half of the financial year.
The Order Book as at the period end increased to £41.6m (30th April 2024: £35.1m), including £1.4m from the recent acquisition of Albion.
The Equity
There are some 108.2m shares in issue.
The larger holders include Ruffer (17.88%), Otus Capital Management (13.99%), Harwood Capital (9.24%), Premier Miton Group (6.95%), NR Holdings (5.55%), Close Asset Management (5.17%), Peter Gyllenhammar (4.24%), Janus Henderson Investors (3.91%) and Puma Investment Management (3.00%).
What The Analysts Say
At Zeus Capital, analysts Andy Hanson and Carl Smith have a DCF valuation estimate out on the group’s shares of 68.5p per share.
For the current year to end April 2025, they are estimating group revenues of £146.1m (£139.5m), with adjusted pre-tax profits rising to £6.0m (£5.1m), lifting earnings to 4.1p (3.4p) and its dividend to 1.4p (1.2p) per share.
The year to end-April 2026 could see revenues of £161.4m, profits of £8.1m, earnings of 5.6p and a 1.9p dividend.
For the 2027 year, they look for £169.7m in turnover with £10.1m profits, generating 6.9p per share in earnings, easily covering a maintained 1.9p dividend.
The brokers consider that they are confident that Van Elle is well positioned to benefit from positive medium-term trends in its end-markets (e.g. a recovery in housebuilding, new infrastructure budget cycles, rail upgrades/electrification).
In their view, the current valuation does not capture the group’s diversified growth opportunities, strong balance sheet and free cash generation.
Alastair Stewart, at Progressive Research, views the group as being at the front end in the priority growth markets of the construction process and has targeted what he argues are the UK’s three most pressing sectors of housebuilding, water and energy transmission.
His estimates for 2025 are for £159.1m revenues, £6.1m profits, 4.2p earnings and a 1.3p dividend.
For the coming year he sees £173.7m sales, £8.1m profits, 5.6p earnings and a 1.4p dividend.
The 2027 year, he estimates, could show £188.5m turnover, £9.9m profits, 6.8p earnings and a 1.8p per share dividend.
My View
These shares are undervalued, especially considering the group’s market share and prominence.
Capitalised at just £44m, with some £6m cash in the bank and making £6m plus profits – it is totally under-rated with its shares at 40.5p each.
Five years ago, the shares were trading at 59p.
In the last year they have been trading in the 32p to 44p price range.
Now I believe that they are about to break out of that and move quite a bit higher, with my previous Target Price of 47p being an early and easily broken position.
(Profile 29.03.21 @ 37.50p set a Target Price of 47p*)
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