HSS Hire tanks as it warns on revenue, interim losses grow

Shares in HSS Hire tanked on Wednesday after the tool and equipment hire company warned that year-on-year revenue growth in the current quarter will see a "materially lower" level of improvement than expected at the start of the first half.

HSS said that while the rate of recovery in its rental revenues has been positive, it has been "materially slower" than originally targeted, leading to lower-than-expected profitability. As a result, it now expects adjusted second-half earnings before interest, tax and amortisation of between £8m and £11m.

In its results for the 26-week period ended 1 July, the company posted a 3.4% drop in revenue to £160.5m and a reported loss before tax of £30.1m versus a £7.8m loss in the same period a year ago.

Net debt at 1 July 2017 stood at £230.6m, £8.2m lower than the first half of 2016 but £11.2m higher than at the 2016 year-end. After careful consideration of the performance of the business in the first half and its existing net debt position, HSS said it will not be paying an interim dividend.

Chief executive officer Steve Ashmore said: "While significant operational change was achieved during H1 17, both Rental revenue growth and the cost base were temporarily impacted leading to reduced profitability.

"We are facing into these challenges by taking decisive action to reinvigorate rental revenue growth through the implementation of new sales initiatives and by rolling-out cost actions that will deliver annualised cost savings of circa £13m, a number of which are enabled by the recent investment in our centralised engineering and distribution capability. As a result of these actions the group returned to profitability in June with revenue in growth for the first 8 weeks of Q3 17 and this momentum will result in a stronger H2 relative to H1 performance leading to a healthier exit rate as we head into 2018."

Neil Wislson, senior market analyst at ETX Capital, said this was "another poor set of numbers", adding that it may be time for HSS to consider merger talks with Speedy Hire.

"In its latest trading update Speedy said full-year results would be ‘well ahead of the prior year's result’. Diverging fortunes could bring the two together after a failed attempt back in 2015. An opportunistic bid could work, particularly with the market cap of HSS temptingly low."

Numis moved its rating on the stock to 'under review' from 'hold' following the results, and cut its 2017 EBITA forecast from £14.5m to a loss of £1.9m,and its 2018 EBITA estimate from £17.2m to £6.7m.

At 0910 BST, HSS shares were down 18% to 45.66p.