18.12.2024
Between now and the end of next month there is time to buy into and add to subsequent positions in Van Elle Holdings (LON:VANL).
On the face of it, a lot of investors would assume that this £40m-capitalised group is boring – well yes it, to a certain point.
Boring is part of its business.
Its shares are now 37p and I feel that they should be trading at over 50p each.
The Business
Based in Kirby-in-Ashfield,in Nottinghamshire, the group gained its place on AIM in 2016 and has subsequently become the UK’s largest and most diverse ground engineering contractor.
It offers a wide range of specialist geotechnical techniques and services to its customers in a variety of construction end markets.
The group operates through three primary segments:
General Piling - which delivers its larger rotary bored, continuous flight auger and driven piling solutions to customers in a broad range of end markets, operating principally on open site construction projects.
(Just to note - continuous flight auger (CFA) piles are drilled and concreted in one continuous operation, thereby enabling much faster installation time than for bored piles, while reinforcement is placed into the wet concrete after casting, enabling the pile to resist the full range of structural loading.)
Specialist Piling - providing ground engineering solutions in environments with access and operational constraints which require the use of specialist piling rigs and techniques, including ground stabilisation techniques and an extensive on-track rail capability, and
Ground Engineering Services – which takes in its housing activities including its piling and Smartfoot modular foundation systems and the company’s geotechnical and testing services operating through the independent Strata Geotechnics brand.
The group operates the UK’s largest and best invested rig fleet, with some 132 rigs in total.
Its Strategic Markets
The group maintains a diverse and wide customer base, reflective of the breadth of services offered across its core sectors; typically delivering 1000 plus projects a year.
As a specialist subcontractor, its customers are typically tier-1 contractors, developers and housebuilders.
It offers a full range of integrated ground engineering services deploying an unrivalled range of rigs and expertise on both a regional and national basis:
Residential; private and social housebuilders and larger residential developers,
Infrastructure; rail, highways, power & energy and water, flooding & coastal, and
Regional Construction; public and private construction programmes and regional developments.
First Half Trading Update
Last Thursday, 12th December, the group provided a Trading Update for the six months to end-October, indicating a 5% decrease in revenues at about £65.0m (£68.0m), reflecting challenging times across all of its operating sectors.
However, its end-period Order Book stood at £41.6m, which was up from the end-April tally of £35.1m.
The Interim Results will be announced on Wednesday 29th January.
Anticipating profitability being second-half weighted, the company expects that its results for the full-year will be in line with market consensus, which is for an underlying pre-tax profit of £6.0m.
The Equity
There are some 108.2m shares in issue.
The larger holders include Ruffer (17.88%), Otus Capital Management (13.99%), Harwood Capital (7.21%), Premier Miton (6.94%), NR Holdings (5.55%), Close Asset Management (5.17%), Premier Fund Managers (4.83%), Janus Henderson Investors (3.91%), Puma Investment Management (3.00%), and IQ EQ Fund Management (Ireland) (2.76%).
Analyst Views
At Zeus Capital, analysts Andy Hanson and Carl Smith have a DCF-based valuation on the group’s shares of 68.5p each.
They estimate that the current year to end-April 2025 will show revenues of £146.1m (£139.5m), with adjusted pre-tax profits of £6.0m (£5.1m), lifting earnings up to 4.2p (3.4p) and increasing the dividend to 1.4p (1.2p) per share.
They conclude that:
“Van Elle’s shares trade on a 9.2x FY25 P/E with a 3.6% prospective dividend yield.
In our view, the current valuation does not capture Van Elle’s diversified growth opportunities, strong balance sheet and free cash generation.”
Over at Progressive Equity Research, analyst Alastair Stewart is looking for £159.1m sales, £6.1m profits, 4.2p earnings and a 1.3p dividend per share for the current year.
For 2026 he estimates £173.7m revenues, £8.1m profits, 5.6p earnings and a 1.4p dividend per share.
He concludes that Van Elle ended FY24 with net funds (pre-leases) of £6.0m, while there is increasing evidence that major clients are requiring their supply chains to demonstrate strong balance sheets.
In My View
This group should be a recipient of increased business as the Labour Government’s hopes for increased infrastructure come into play.
As Alastair Stewart confirms - Ground engineering and foundations are the earliest stages in construction – and especially required in the UK’s national priority sectors of housebuilding, water and power infrastructure.
The group’s shares, which touched 46p in late August this year, are currently trading at 37p, at which level they have to be well worth tucking away, with 50p being my aim within the next year or so.
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