It’s not unusual for a penny stock to surge higher in a short space of time. But it’s also not uncommon to see one cut in half at the drop of a hat.
With a £95m market cap and share price near 21p, Speedy Hire (LSE:SDY) is firmly in penny stock territory today. It’s down 47% in two years and 70% since mid-2021.
However, one broker reckons it has the potential to mount a spectacular recovery. So, is this an under-the-radar penny share that’s worth me taking a punt on?
Value on offer
As a reminder, Speedy Hire rents out construction and industrial tools and machinery. It also has a joint venture in Kazakhstan, where it hires out equipment to the oil and gas industry.
Looking at the company and stock today, I see a few reasons to be bullish. The first is that despite challenging market conditions across the UK construction industry, revenue remained stable in the 12 months to 31 March (FY26), at £416m.
Plus, the new financial year (FY27) was off to a decent start, with revenue rising 2% year on year in the first two months. Adjusted EBITDA (earnings before interest, tax, depreciation, and amortisation) was up 13%, aided by disciplined cost control.
Another thing to like here is that the firm has completed the ‘Enable’ phase of its Velocity growth strategy. This is a five-year plan to transform Speedy Hire from a traditional tool hire business into a more scalable service provider (with a focus on large-scale and regulated infrastructure markets).
Note that last year, the company signed multi-year contracts with ProService and Thames Water.
Over the last three years, we have invested c.£20m in transforming the business, focused on strengthening the operating platform, modernising our systems, improving efficiency and leveraging data to drive enhanced customer service visibility, operational control and readiness for capitalising on growth opportunities.
CEO Dan Evans
There’s also income on offer, with Speedy Hire offering a forward dividend yield of 5.3%. That’s pretty rare for a penny stock.
Finally, we have a really cheap-looking valuation. Based on the forecast for this year, the forward price-to-earnings ratio is just 6.6. That’s low in terms of both the wider market and industry norms.
Therefore, I can see why Canaccord Genuity recently gave the stock a 63p price target. That’s around 201% higher than the current level!
What’s the catch?
On the other hand, I see a few obvious risks. The first is the challenging backdrop, with rising inflation and geopolitical volatility potentially leading to further project delays. Unfortunately, this situation is out of the company’s hands.
Second, profitability has been all over the place in recent years. Last year, margins were impacted by wage inflation and increased financing costs. The adjusted pre-tax loss came in at £9.8m.
Therefore, while the firm intends to grow the dividend by at least 5% in both FY27 and FY28, this isn’t ultimately guaranteed. Also, the firm has quite a bit of debt (net debt was £159bn at the end of last year).
If Speedy Hire can sustainably drive earnings growth higher, the stock looks very undervalued today. I think it could easily double or more from here.
But with the ongoing challenges in the UK construction market, it’s too risky for my own portfolio. I see more attractive small-cap opportunities elsewhere.
Should you invest £5,000 in Speedy Hire Plc right now?
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Ben McPoland has no position in any of the companies mentioned.
