“Form is temporary, but class is permanent” is a sporting truth that equally applies to the corporate world, describing those companies that consistently outperform. One such stock is Vp, who today issued another “excellent” set of results. FY17 PBTA and EPS coming in at £34.9m (+17%) and 69.5p (+12%) respectively, with the dividend hiked up 17% to 22p on the back of 16% ROCE - once again in excess of the Board’s stretching ‘through-cycle’ goal of 15%.
I guess that we shouldn’t be too surprised, though, since returns have far exceeded Vp’s cost of capital (see below) for some time now, reflecting market share gains and 1 st class execution, underpinned by a strategy of supplying only specialist, high margin equipment for targeted verticals enjoying secular growth.
This impressive performance has been achieved without gearing up the balance sheet either, with the ratio of net debt to EBITDA holding steady at a comfortable 1.0x- 1.5x (see below). Indeed, we believe disciplined capital allocation is a key theme that is unlikely to change anytime soon, given the extensive experience of the executive team, and the careful guidance offered by the Pilkington family (50% stake).
What’s more, going forward management still see plenty of attractive areas within which to commit fresh capital – such as house building (ED est 11% sales – UK Forks), infrastructure (43% - Groundforce), construction (27% - Hire Station) and rail (Torrent Trackside). Here, overall conditions are favourable thanks to robust business confidence, low interest rates and forecast 1.9% GDP growth (source: Bank of England) – despite concerns over Britain’s forthcoming BREXIT negotiations with Europe and the outcome of Thursday’s General Election.