Down 40%, should I buy this 6.5%-yielding business for my Stocks and Shares ISA?

This sold-off equipment rental firm could be a lucrative opportunity for my Stocks and Shares ISA if new management can steer it back on track.

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Despite strong stock market performance in 2024, I’m still hunting for discounts to add to my Stocks and Shares ISA. And across the London Stock Exchange, investors like me are seemingly spoilt for choice, especially in certain industries like construction.

One business that’s seemingly not getting a lot of love lately is Vp Plc (LSE:VP.). The specialist equipment rental firm’s one of many businesses that’s seen its market capitalisation shrink in light of higher borrowing costs. Delays in construction projects, along with a few managerial mistakes, have caused shareholders to suffer a 40% loss over the last three years.

However, with a new CEO at the helm and improving macroeconomic conditions, today’s depressed valuation could be a lucrative opportunity to secure a 6.5% dividend yield.

Vp’s elephant in the room

A few months ago, Vp released its final results for fiscal 2024, which ended in March. From a revenue perspective, the company proved to be quite resilient. While the top line shrank 0.8%, from £371.5m to £368.7m, it faired better than some of its rivals during turbulent market conditions.

Unfortunately, it’s the bottom line that caused the most concern, which saw pre-tax profits plummet by 91%! The culprit is Vp’s Brandon Hire Station business. The firm previously acquired this enterprise back in 2017 for £41.6m. And from the get-go issues started to emerge with £5.8m of additional exceptional costs.

After years of being allowed to fester, the problems at Brandon finally spilt over, resulting in a £27.7m impairment charge that sent earnings plummeting. To be fair, this is a non-cash expense, so cash flows remain unaffected. But it goes to show that not all growth acquisitions pay off, and Vp definitely made a big error seven years ago.

Having said that, the newly minted CEO, Anna Bielby, seems to be taking the necessary steps to fix the problems. Brandon now has a revamped leadership team, and underperforming branches are being closed.

Returning to growth

The long-term demand for equipment rental from the construction industry has steadily increased over the last decade. And it’s a trend that’s expected to continue moving forward, given it’s far more cost-effective for builders. Yet, the short-to-medium term outlook for Vp’s also starting to look more encouraging.

The new UK government’s Budget announced a series of infrastructure and construction investments that Vp intends to capitalise on. And while the homebuilding market’s currently fragile, a revamped planning permission process could change that in the coming years.

That means 88% of Vp’s current revenue stream looks like it’s about to receive some long-overdue growth tailwinds. And providing no more spanners are thrown into the works, the firm’s current forward price-to-earnings ratio of 8.8 suggests a lot of upward share price potential for my Stocks and Shares ISA.

That’s why I’m keeping close tabs on this enterprise. Given its previous mistakes, I want to see more progress in earnings expansion before adding any shares. However, for investors comfortable with more risk, Vp shares may warrant a closer look.

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.

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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