Lavendon profits elevated in third quarter

Despite concerns over European trading conditions, aerial work platform supplier Lavendon kept revenue and margins at an elevated level in the third quarter.

Thanks to particularly strong revenue growth coming from a recovering UK, a fast-growing Middle East and a slight recovery in Germany, management are confident of delivering on full year expectations.

Rental revenues increased by 6% at constant exchange rates in the third quarter, down from the 7% growth in the first half, giving underlying 6% growth for the first nine months of the year.

Growth in revenue across the first nine months of the year has driven improved profitability, operating margins and return on capital employed (ROCE) despite the strong exchange rate headwinds on overseas earnings.

The UK, making up almost half of group revenues, lifted revenues 8% in the quarter thanks to continued pricing improvements and further favourable mix movements more than offsetting the lower year on year volumes.

"The shift in demand seen this year, away from high volume smaller machines towards larger higher revenue generating units, is expected to continue over the balance of the year and is an indication that the commercial and industrial construction sectors we serve continue to recover," the company said.

Growth in the Middle East accelerated to 15% despite stronger comparators, thanks to volume and some pricing improvements.

In Europe, France continued its good growth, better volumes in Germany resulted in a lesser decline, although the smallest group market of Belgium deteriorated badly to a 21% decline.

Broker Peel Hunt said: "It's all about ROCE. Our analysis suggests there is scope to drive material ROCE improvements through higher revenue utilisation, operational gearing (enhanced by self-help) and from internal cash-flow-financed fleet expansion. We consider the current multiples do not reflect the UK recovery potential, de-risking and management strength, nor the improving ROCE profile."