Liberum initiates HSS Hire at 'sell'

The brokerage said its cautious view is predicated on concerns over the constraints the group's leverage is having on its ability to deliver growth in the rental business.

"Given the margins on offer in this segment, we see risks to medium-term consensus estimates from lower than expected rental revenues. With the current valuation failing to fully reflect these risks, and the absence of any yield support, we initiate with a sell."

In addition, Liberum said it sees material downside risk to the company's equity base given the growth rates currently underpinning the goodwill associated with the core rental business.

The brokerage said that given the nature of HSS’s business, it's appropriate to value the company on an asset basis and on this basis, it reckons the shares are currently worth 46p, suggesting that despite the recent weakness they are still overvalued.

In April, the tool and rental equipment company reported a wider full-year pre-tax loss following a year of "significant operational change and investment", amid difficulties in its core rental business.

For the year to the end of December, the reported loss before tax widened to £17.4m from £13.8m, while adjusted pre-tax profit was unchanged at £5.8m and revenue rose 9.6% to £342.4m.

At 1025 BST, the shares were up 1.1% to 55.10p.