HSS Hire turns lower after warning

It's been listed less than five months, but HSS Hire is already in trouble. April and May were weak, and demand for its cooling equipment has slowed. That caused the tool hire firm's share price to slump by a third on Monday, suggesting the City is unconvinced by claims that business has begun "to return to more normalised levels".

"The group's trading performance through Q2 was marginally below expectations," warned the company. However, the order book has been building into the second half of the year, and management thinks HSS has taken market share over the period. However, with organic second-quarter revenue growth expected to be in high-single digits, plus branch start-up costs, adjusted first-half cash profit will be no better than last year. We'll get confirmation at interims on 26 August.

(click to enlarge)

Numis analyst Julian Carter now reckons full-year revenue and cash profit will be up to 5% lower, which will leave an 18% hole at the earnings per share level as depreciation is maintained. As key sectors account for a third of group revenues, Carter expects second quarter growth 8-9%, lower than the 13.2% recognised in the first three months of the financial year. Flat profit implies £13.5 million in the quarter and £28.9 million for the half.

The local branch roll out programme is on track, with the company's 28th new store opening in Bicester on Monday. Another 22 are scheduled to be opened this financial year and six are being developed for the group's 2016 pipeline. A new facility has been opened in Reading to improve supply in Thames Valley and West London as expansion takes place. The integration of All Seasons Hire, which was acquired in May, is going to plan and the expansion of its fleet and national depot footprint has already taken place, which will support growth.

This expansion should boost sales in the second half of the year, along with some key contract wins. Expecting organic first half revenue growth of 11%, followed by 13% in the second half, Numis tips full-year sales to hit £322.6 million, with pre-tax profit of £19.9 million. Earnings per share of 10.1p put HSS on 13.8 times forward earnings.

HSS raised £103 million at 210p from its IPO in February, but collective cold feet saw the share price crash by as much as 33% at one point Monday to 122.5p, and Carter has lowered his target price from 235p to 200p and cut his recommendation from 'buy' to 'add'.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.