The latest research note from Equity Development highlights a period of adjustment for Vp plc (LON:VP), as current market headwinds prompt a reset in earnings expectations. While near term trading has proven more challenging than previously anticipated, the broker continues to underline the Group’s long term strengths and recovery potential.
Analyst James Tetley states, “Vp’s trading update this morning prompts a reset of earnings expectations to reflect current market headwinds.” He explains that Q4 trading has been affected by “a muted January ‘return to work’ with activity in construction and water highlighted as being particularly challenging.”
Forecasts Updated to Reflect Current Conditions
The macroeconomic backdrop, particularly across construction and water markets, has led to a slower than expected ramp up in activity at the start of the crucial fourth quarter. As a result, Vp now expects to report adjusted PBT in a range of £26m to £29m for the year to 31 March 2026.
Equity Development has prudently set its new forecast at £27m, representing a reduction of approximately £10m from previous expectations. As outlined in the research note, “We prudently set our new forecast at £27m, a c.£10m reduction on our previous forecast.”
The broker also notes that a 5% reduction in FY26 sales forecasts has resulted in a 28% reduction in adjusted PBT versus earlier projections, reflecting operational gearing within the business.
Revised Forecasts
For the year to 31 March 2026, Equity Development now forecasts:
- Revenue of £360.0m, previously £380.0m
- EBITDA of £101.0m, previously £111.5m
- Adjusted PBT of £27.0m, previously £37.5m
- Fully diluted EPS of 49.5p
- Dividend of 39.5p
Looking ahead to FY27, the broker anticipates:
- Revenue of £355.0m
- EBITDA of £104.5m
- Adjusted PBT of £30.5m
- Fully diluted EPS of 55.8p
- Dividend maintained at 39.5p
Net debt including leases is forecast at £215.6m in FY26, rising to £224.0m in FY27, with net debt to EBITDA at 2.1x in both years.
Improvement Expected in FY27
Encouragingly, the outlook beyond FY26 appears more supportive. The research note points to an anticipated increase in water revenue during FY27, reflecting significant spending committed under AMP8.
James Tetley comments, “We expect an improvement in FY27, reflecting the benefits of the Brandon Hire Station restructuring and an expected improvement in water industry demand under AMP8.”
The restructuring of Brandon Hire Station is progressing well, with the branch footprint reduced from 100 to 41 and headcount reduced by approximately 400. These changes are expected to enhance efficiency and support margins over time.
New Leadership in Place
Vp has also welcomed Alice Woodwark as Chief Executive Officer from 1 February. She brings substantial leadership experience, including previous roles at Mitie and Compass, and currently serves as a Non Executive Director at Vistry Group. The appointment marks an important step as the Group navigates current market conditions and positions for recovery.
Valuation and Long Term Perspective
Despite the earnings downgrade, Equity Development continues to regard Vp as a high quality business with a strong track record and sector leading returns. The broker has revised its Fair Value estimate to 750p from 1000p, reflecting the lower earnings base.
Importantly, the shares are currently trading on less than 10 times earnings. As the note concludes, “Post downgrades, the shares are trading on <10x P/E, which we consider attractive for a high-quality business with significant recovery and long term growth potential.”
With exposure to infrastructure, energy transmission and specialist projects, alongside a 30 year unbroken dividend record, Vp retains clear structural strengths even as near term trading remains subdued.
Final Thoughts
While market headwinds have necessitated a reset in earnings expectations, the latest research note from Equity Development makes clear that Vp plc remains a resilient and well positioned specialist equipment rental business. With restructuring benefits coming through and improved water industry demand expected under AMP8, the foundations for recovery in FY27 and beyond remain firmly in place.
