EQUIPMENT hire group Vp said plans to buy back about seven per cent of its shares for £7.8m should improve value for shareholders.
The Harrogate-based group, which rents out equipment ranging from power tools to telescopic forklift trucks, plans to buy one in 14 of its shares at 254p each.
The tender offer should reduce the number of dividend-earning shares in issue, thus improving returns for investors.
“We’re doing it to improve shareholder value,” said managing director Neil Stothard. “If the tender is taken up in full or part the impact is earnings-enhancing.” He said the buyback should broadly enhance earnings by seven per cent, adding about 2p to shares.
He added there should be a “double windfall” of about £200,000 because of the difference between the cost of dividends and the interest charge on its higher debt level.
“We fundamentally believe the shares have been undervalued for some time,” said Mr Stothard. “We’ve had a pretty positive run over the last years notwithstanding the difficulties of recession, and we feel we have performed in relative terms extremely well. We sometimes feel that the market does not reflect this success.”
Vp has a £70m debt facility, and should still have £15m of that at its disposal after the buyback, he added. Analysts estimate Vp will generate £40m of cash this year.
Earlier this week Vp upgraded expectations, saying it expects to report full year profits “moderately” ahead of market forecasts.
Shares in the company closed at 248.25p on Thursday and increased 6.75p to 255p yesterday.
The total value of the maximum 3.08m shares it wants to buy is £7.8m – although this depends on shareholders’ support at a general meeting on March 9.
Vp added the tender offer would be void if less than one per cent of its issued ordinary share capital was tendered. Vp already holds 2.94m shares in treasury. It joins other Yorkshire firms including Morrisons and Croda in purchasing its own shares.
Analysts at house broker N+1 Brewin said: “The buyback will be earnings enhancing and clearly evidences management’s belief that the shares are significantly undervalued at the current level.
“Having upgraded forecasts following the interim management statement earlier this week we make no further changes to our estimates today, pending the outcome of the tender offer.”