Van Elle Holdings plc (LON:VANL) has announced an appointment to the Piling framework for the West of Leeds section of the Transpennine Route Upgrade (TRU), a major programme of rail investment across the North West and Yorkshire. The appointment to this alliance, alongside Network Rail and other major engineers, highlights Van Elle’s expertise across a breadth of integrated capabilities in Rail (stations, structures, electrification, signalling). We make no changes to forecasts today, but this announcement helps to underpin our numbers, which show strong fundamentals and progress towards the company’s medium term targets. On that basis, we reiterate our valuation estimate of 64.4p per share, a 67% uplift to the current share price.
¨ Framework appointment: The multi-billion-pound TRU investment programme aims to improve rail links (reliability, capacity, journey times) between Manchester and York via Leeds and Huddersfield. Van Elle’s appointment to the TRU West alliance, alongside Network Rail other major construction/engineering companies, will involve work on over a dozen stations, as well as electrification and signalling across 42 miles of railway. Prior Zeus notes have emphasised the structural opportunities in the Rail segment (electrification, ‘levelling up’ etc) and Van Elle’s expertise and capabilities in this area. In our view, today’s win reinforces this message and indicates that Rail work is gathering pace. Projects in this division are at the upper-end of the Group’s margin range and should benefit overall operating margins in the medium-term. To provide further details of the opportunities presented by Rail, the company is hosting an investor presentation on 19 July 2022.
¨ Forecasts and outlook: After a trading update on 17 May that confirmed strong H2 trading for FY22 and continued positive momentum, we upgraded expectations for FY22 and FY23. There are no changes to Zeus forecasts today, however, this new appointment helps to underpin our forecasts, our assumptions of margin improvement, and progress towards management’s medium-term targets (5-10% annual revenue growth, 7-8% operating margin, 15-20% ROCE, leverage <1.5x).
¨ Valuation: The shares currently trade on 11.4x FY23 earnings with a 3.0% FY23 dividend yield and strong balance sheet. We remain comfortable with Van Elle’s progress towards its medium-term targets, and therefore reiterate our valuation estimate from the August 2021 initiation note of 64.4p per share, now offering c. 67% potential upside.
Summary financials
| Price | 38.5p |
| Market Cap | £41.1m |
| Shares in Issue | 106.7m |
| 12m Trading Range | 34.5p– 53.0p |
| Free float | 88.30% |
| Next Event | FY22 results: 3 August |
Financial forecasts
| Yr end Apr (£’m) | 2021A | 2022E | 2023E | 2024E |
| Revenue | 84.4 | 125 | 117.2 | 118.9 |
| y.o.y. growth (%) | 0 | 48.1 | -6.2 | 1.5 |
| Adj. EBITDA | 4.3 | 8.7 | 10.3 | 12.3 |
| Adj. EBIT | -0.7 | 4.2 | 5.5 | 7.3 |
| Adj. PBT | -1.3 | 3.6 | 4.8 | 6.5 |
| Adj. EPS (p) ful dil | -1.2 | 2.7 | 3.4 | 4.6 |
| DPS (p) | – | 1 | 1.2 | 1.7 |
| Net (debt)/cash | -1.7 | 0.4 | 0.5 | 0.5 |
| Net (debt)/cash (excl. IFRS 16) | 3.7 | 5.9 | 6 | 6 |
| P/E (x) | n/a | 14.3 | 11.4 | 8.4 |
| EV/EBITDA (x) | 10 | 4.7 | 4 | 3.3 |
| Div. yield (%) | – | 2.6 | 3 | 4.4 |
