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Questor share tip: Lavendon's Spanish retreat looks a smart move
108p +4.5p
Questor says Buy
Companies are quitting Spain like rats from a sinking ship. The latest to announce its departure is Lavendon, a company that rents out elevated work platforms so builders can work safely at heights. Lavendon is spending £5m to wind down all operations in Spain, because it feels money spent there would be better deployed elsewhere.
That is a good call. It was the collapse of the housing bubble that pushed Spain into its deepest economic downturn in decades and all signs suggest it is far from recovering.
Elsewhere in Europe, Lavendon has posted impressive growth in the first half - with revenues up 10pc in the UK and Germany, 16pc in France and 17pc in Belgium.
The company put this down to both higher rental volumes and better pricing. The latter is important as it will translate directly to higher profits.
Lavendon chairman John Standen says it is beginning to see the benefits of a strategic review following a torrid time during the recession.
The Middle East has been a difficult market, as a result of all the political upheaval. Rental revenues dropped 7pc in the first quarter compared with a year earlier, but picked up 2pc in the second.
It is a significant region for Lavendon, providing 11pc of rental revenues and an even greater share of profits. The company admits the future remains uncertain but Mr Standen says the number of pieces of kit in use in the Middle East is rising.
Continental Europe accounts for another 40pc of sales, so the company would be severely rocked by any crisis in the Eurozone. Mr Standen says of that possibility: "What will be will be."
Rather more encouragingly, he said Lavendon is better prepared for a shock than it has been in the past, having cut its debt pile to £129m.
Lavendon shares peaked in June on the back of a bid from rival Ashstead and Belgium's TVH Services, only to tumble back down when they walked away.
It could still be an acquisition target either for a rival or private equity. The sector is consolidating and Lavendon looks cheap, trading on around 11 times next year's earnings.