GCIVan Elle on track as it completes strategic acquisition
Ground engineering specialist () confirmed in an update today that it was on track to meet full year expectations, alongside completion of the recently announced deal to acquire Rock and Alluvium from ().
The company said that revenues for the half-year to 31 October 20203 would be £68m, down 16% from HY2023, but that operating margins had held steady at 3.9%. The company pointed to “uncertainty and subdued activity levels in some of the Group's end markets, particularly the housebuilding sector” which it said would continue in the second half.
Broker Zeus has left its forecast unchanged but expects £7.5m to be added to revenues in FY24 with no impact in pre-tax profits at £5m, rising to an additional £15m in FY25 and £20m in FY26, respectively adding £0.5m and £0.75m to pre-tax profits. It also notes that the 11 rigs to be acquired as part of the deal mean cash capex will be reduced by £0.5m in each of the forecast years.
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Given that backdrop of delayed project starts and ongoing inflationary pressure, this is a creditable performance, helped by Van Elle’s decision to target opportunities in the energy sector, alongside establishing a Canadian rail subsidiary where projects began in the second quarter. It also stands to benefit from increased infrastructure investment in the water sector to come after years of underinvestment.
Meanwhile, the earnings enhancing Rock and Alluvium acquisition strengthens Van Elle’s ability to capitalise on a recovery in the housebuilding recovery there when it comes, giving it the opportunity to cross sell its other specialised groundwork services into its customer base in London and the south east where it’s currently under-represented.
With net funds of £8.9m – up from £7.5m at the end of April – and an £11m undrawn debt facility, Van Elle is also well positioned to take advantage of further acquisition opportunities weak construction markets may offer up.
At the current 39p, the shares trade on a forecast FY24 PE ratio of 10.4x, and offer a dividend yield of 3.3%, a conservative valuation from which Zeus sees 76% upside to 64.4p.
The company expects to announce its half-year results for the six months ended 31 October 2023 on 24 January 2024.
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