Why Is Speedy Hire Plc Crashing Today?

Roland Head asks if investors should offload shares in Speedy Hire Plc (LON:SDY) after today’s dismal trading update.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shares in tool and equipment rental firm Speedy Hire (LSE: SDY) fell by more than 30% when markets opened this morning, after the firm issued a major profit warning.

Speedy said that after “a slower than expected start” to the year, profits for the 2015/16 financial year were likely to be “materially below the Board’s expectations” and below those reported for last year.

The company gives three reasons for its poor start of the year, but to be honest, I’m not totally convinced this is the whole story.

1. Equipment shortage

The firm says that there was a shortage of equipment during the network optimisation programme. This refers to the reorganisation of the company’s national and regional distribution centres.

However, in its final results, published in May, Speedy Hire boasted about the successful and early completion of this programme, during the last financial year. Why is it still causing problems now?

2. Ignoring customers

In today’s statement, Speedy Hire says that sales suffered because of a “focus on strategic accounts at the expense of SME customers”.

The firm’s strategic and major accounts accounted for 51% of sales last year. In last year’s results, there was a lot of waffle about new sales and support structures for strategic accounts.

At the same time Speedy Hire said that its market share of local and regional customers had fallen, due to its strategy of moving away from local markets. The firm said that it was “starting to re-engage with this customer base” but that it “was no small task”.

3. IT problems

The third reason given for today’s profit warning was “poor customer service caused by disruption during the implementation of a new IT and MI system”.

Yet in last year’s results, the firm claimed that it had completed the implementation of the new IT systems. If this is true, why is it still causing disruption?

CEO walks plank

In my view, all of these problems are the result of poor management.

I was not surprised to learn that the firm’s chief executive Mark Rogerson has decided to leave the business.

However, Mr Rogerson is being replaced by the firm’s finance director, making me question whether this management overhaul will be significant enough to solve Speedy’s problems.

What’s really wrong?

Speedy’s shares have now fallen by nearly 40% this year. The firm is the second listed equipment hire company to issue a profit warning this week — shares in HSS Hire Group fell by 25% yesterday, with the firm blaming weak demand from major customers.

I suspect that demand from strategic customers is not rising fast enough to make up for falling local sales. I wouldn’t be surprised if Speedy issues another profit warning later this year.

A full-year loss seems likely, especially as Speedy said today that negotiations with a potential buyer for its unwanted Middle East operations had failed to reach an agreement. This could lead to an impairment charge and possibly cash losses, later this year.

There’s also a risk that Speedy’s net debt, which rose to £105m last year, could become problematic.

Speedy’s profit warning highlights the risks of small cap investing. But the firm’s shares are still 81% higher than five years ago.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

After it crashed 25%, should I buy this former stock market darling in my Stocks and Shares ISA?

Harvey Jones has a big hole in his Stocks and Shares ISA that he is keen to fill. Should he…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »