Speedy Hire (LON: SDY) continues to grow its services much faster than its hire revenues, according to its AGM trading statement.

In the first quarter of the current financial year, the equipment hire and services provider grew higher margin services revenues by 13.4%, compared with 1.2% growth in hire revenues. The disparity in growth rates is increasing.

In the year to March 2019, continuing revenues were 6% ahead at £389.2m, while underlying pre-tax profit was 19% higher at £30.9m. Services revenues were 10% ahead and hire increased by 3.5%.

Attempts to broaden the smaller company customer base are succeeding with 27.5% growth in this segment of the market. This lessens the potential problems due to exposure to larger, debt-ridden construction companies.

Assets

Asset utilisation has improved from 55.7% to 56.8% on a rolling 12-month basis. There is seasonal demand for some equipment and utilisation levels are similar to the year to March 2019.

Net debt has increased since the year end. However, it is expected to decline from £89.4m to £77m by March 2020, even after hefty capital investment.

Performance

I wrote about Speedy Hire when the share price was 56.2p. The share price reached 65p, but it has fallen back. Following today’s AGM, the share price is 59.4p, up 0.4p. That is after the shares went ex-dividend for the 1.4p a share final dividend payable on 9 August.

Analysts are forecasting 8% growth in revenues to £426.8m this year and a 13% rise in underlying pre-tax profit to £36.2m.

The total dividend is expected to grow by 10% to 2.2p a share this year. That is a forecast yield of 3.7%. The prospective 2019 multiple of nearly 11 is not unusual for a hire company, but the increasing importance of services, and their growth potential, means that Speedy Hire deserves a higher rating.