Van Elle (VANL) has bolstered its position as the UK’s leading groundworks specialist with the proposed £3.8m bolt-on acquisition of Rock and Alluvium Ltd., a move that strategically expands the group into the residential and commercial market in London and the South East of England.
The Leatherhead based target is being bought from construction contractor Galliford Try (GFRD), which has also signed a new five-year trading agreement with Van Elle, which once mature could add more than £10m a year to revenues. The deal will see Van Elle provide piling and geotechnical services to Galliford Try, specifically within its water infrastructure business.
Rock and Alluvium generated £15.5m of revenue and lost £0.2m at an operating level in the year to 30 June 2023, but cost synergies mean Van Elle expects the acquisition to boost earnings once completed in mid-November.
The target is a specialist in continuous flight auger and rotary piling, giving Van Elle the opportunity to cross sell its other services into its customer base in a geography in which it’s currently under-represented.
Broker Zeus has left its forecast unchanged until the deal completes but expects £7.5m to be added to revenues in FY24 with no impact in pre-tax profits, rising to an additional £15m in FY25 and £20m in FY26, respectively adding £0.5m and £0.75m to pre-tax profits. It also notes that the 11 rigs to be acquired as part of the deal mean cash capex will be reduced by £0.5m in each of the forecast years.
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As its recent AGM statement demonstrated, Van Elle is holding its own in a tough market, particularly in residential construction. This deal further increases its ability to capitalise on a recovery there when it comes, alongside increased infrastructure investment in the water sector to come after years of underinvestment.
The consideration for the acquisition has sensibly been structured with £1.8m to be paid initially and £2m twelve months after completion, leaving Van Elle in a net cash position and in a position to pursue further acquisitions.
At the current 39.5p, the shares trade on a forecast FY24 PE ratio of 11.3x, and offer a dividend yield of 3%, a conservative valuation from which Zeus sees 63% upside to 64.4p.