Lavendon’s full year results are due out tomorrow. The results should contain no surprises after the positive trading update on 14th January in which the Group indicated that results were expected to be at the top end of expectations. The focus will be on the outlook statement, with recent share price weakness highlighting investor concerns. In the UK, we expect Lavendon to reassure and to continue to deliver growth. In the Middle East, we believe investors’ concerns have some foundation and would not be surprised to see a further deterioration in both pricing and payment terms. Overall, at this early stage in the year, we expect earnings guidance to be maintained. However, with spending cuts being implemented across the gulf states, we see potential risks to outer year forecasts. We estimate that a Middle East sales downgrade of 50% would put the Group on an FY’17 P/E multiple of 11.8x (sub-sector: 10.4x). We believe the quantum of any downgrade would be much smaller than this and therefore continue to see value in the shares.
