Berenberg initiates coverage on VP at 'buy'

Berenberg stated that when looking for investment opportunities, it likes to see - a long-term record of shareholder returns, strong and consistent returns on capital employed, consistent history of organic growth, an easy-to-understand business model, upside to future forecasts, and a low valuation.

The German bank admitted that finding a company that offers all the aforementioned attributes was "extremely rare", but it believes VP was, in fact, one such example.

"VP is a circa £350.0m equipment rental business, focused on the specialist segments of the UK market, with a record of growing materially ahead of its end-market. With its longstanding management team and strong focus on ROACE (returns on average capital employed), the business has achieved an annualised TSR of over 17% over the past 20 years," said the analysts.

Berenberg noted that in spite of this, and the fact that the business exited March 2021 trading at 95% of pre-Covid levels, VP was currently trading 14% below its pre-pandemic share price, and at a potentially single-digit price-to-earnings ratio.

"We consider this a material mispricing, and expect VP to significantly outperform over the short and longer-term," concluded the analysts, who also issued the stock with a 1,310.0p price target, implying a 47% upside.