Despite a solid shareholder register and a reasonably priced initial public offering (IPO) we are unconvinced by the investment
case behind earthworks contractor Van Elle (VANL).

Nottinghamshire-based Van Elle attracted an all-star list of fund managers including Ruffer, Hargreave Hale, Blackrock and Miton when it raised £40m to join the stock market on 26 October.

Decent earnings and a reasonable balance sheet are among the other attractions. At 101p a share, the business is worth around £81m versus sales in the year to 31 April 2016 of £84m, profit-before-tax of £10.7m and net debt of around £8.4m, according to Van Elle’s prospectus.

While investors appear to be receiving the business on the cheap, it’s worth considering fellow groundworks specialist Keller (KLR) trades at a similarly lowly multiple of earnings, though most of its business is overseas.

Chief executive Jon Fenton is keen to downplay Van Elle’s cyclicality and comparisons to peers, saying ‘the only similarity we have with Keller is that we drill holes in the ground’. Fenton argues Van Elle’s resilience is demonstrated by performance in the 2008 and 2009 recession when it remained profitable.

Efforts to diversify into the rail engineering market and other less cyclical sectors are bearing fruit, Fenton adds. (WC)

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