Construction equipment

As an introduction, Speedy Hire is a construction tools and equipment rental and hire business. With over 200 depots across the UK and Ireland, it has over 300,000 itemised assets available for trade and DIY customers.

So what’s happening with Speedy shares currently? As I write, they’re trading for 37p, putting them in penny stock territory. At this time last year, the stock was trading for 59p. This equates to a 37% drop over a 12-month period. Many FTSE stocks have fallen in recent months due to macroeconomic headwinds, coupled with the tragic events in Ukraine.

The bull case

Let’s look at some of the positives of Speedy shares. To start with, I can see that they are trading at dirt-cheap levels on a price-to-earnings ratio of just nine.

In addition to this, Speedy shares would boost my passive income stream through dividend payments. The current dividend yield stands at 5.9%. To provide some context, the FTSE 100 and FTSE 250 average yields stand at 3%-4% and 1.9%, respectively. I am conscious that dividends are never guaranteed, however.

Next, Speedy has a decent track record of performance. I do understand that past performance is not a guarantee of the future. However, looking back, I can see it has recorded consistent revenue and profit for the past four years. It’s recent full-year results were very close to pre-pandemic levels. This is encouraging as the pandemic caused disruption for many firms.

Finally, I believe Speedy operates in a burgeoning sector right now. Construction projects and spending is increasing. For example, the UK government is looking to spend more on essential infrastructure. Furthermore, there is a shortfall of new homes in the UK, meaning demand is outstripping supply. Many house builders are working hard to plug this gap. Although I do not profess to be a construction expert, my research tells me that it is more cost-effective to hire tools, rather than buy them. This should help boost Speedy’s performance, and level of return.

A penny stock with risks & my verdict

All stocks have potential downsides and risks, and Speedy is no different. First off, the current economic volatility could play a part in slowing down infrastructure projects. This could hinder demand for its products, as well as hurt performance and returns. Next, due to inflation, the cost of materials has risen. This means that Speedy may need to hike prices to remain profitable. This could also hurt demand and customer numbers.

Overall I like the look of Speedy, as a business, and as a stock to boost my holdings. It has a good profile and presence. The shares look good value for money and would boost my passive income stream. I believe current headwinds could cause shorter term issues. However, I invest for the long term, so would expect to see growth and consistent returns eventually. I will be buying the shares.

Construction equipment rental

Speedy Hire is a construction tools and equipment rental business. With over 200 depots across the UK and Ireland, it has over 300,000 itemised assets available for hire.

So what is the current state of play with the Speedy Hire share price? As a reminder, a penny stock is one that trades for less than £1. Speedy shares are trading for 49p, as I write. At this time last year, the shares were trading for 75p, which is a 34% drop over a 12-month period.

I believe Speedy shares have come under pressure in recent times due to macroeconomic headwinds and the stock market correction. This correction was caused by the geopolitical issues arising in Ukraine currently.

A penny stock with risks

The biggest threat towards Speedy’s performance and growth, and in turn investor returns, is that of soaring inflation and the rising cost of raw materials. Speedy will see its costs rise, which means increasing its prices. Some businesses have defensive capabilities whereby a price increase would not deter its customers and they would still experience consistent sales. Speedy doesn’t have this characteristic, in my opinion. It could lose customers to competitors that are able to offer better value for money.

Another issue is that Speedy is an asset-heavy business. It must continuously invest in new and updated equipment that comes out and a significant capital outlay is needed to do this. This outlay could affect any shareholder returns.

Why I like Speedy Hire shares

As mentioned earlier, Speedy could benefit from the construction industry recovering towards pre-pandemic levels. When the pandemic struck, the construction industry was severely affected. Current demand for housing and commercial property is soaring. In fact, demand for homes in the UK is currently outstripping supply.

As well as market conditions, Speedy’s business model is also beneficial to its own progress, in my opinion. There is a general consensus in the construction community that renting, and not buying tools, is more cost effective. Speedy specialises in renting out its equipment.

Speedy shares pay a dividend with a yield close to 4%. This is high for a penny stock, which is enticing. It also recently commenced a share buyback scheme that will reward investors too.

Let’s take a look at the fundamentals then. Prior to the pandemic, Speedy was able to grow performance in respect of revenue and gross profit. I do understand that past performance is not a guarantee of the future, however.

Coming up to date, Speedy’s full-year update for the year ending 31 March, released in April, made for positive reading. Revenue is set to increase by 5% compared to 2020 and investment of £70m has also helped secure a lucrative partnership with DIY giant B&Q. Speedy now has a presence in 38 B&Q stores, which will help boost its profile and performance.

Speedy Hire is a penny stock I would add to my holdings. I believe it could benefit from market conditions, despite macroeconomic challenges. The shares could be on the cusp of heading upwards in my opinion and I would buy them now before any price increase.

Dirt-cheap penny stocks

Vertu Motors (LSE: VTU) is a share I sold out of towards the end of last year after a strong share price run. The shares though are still cheap, trading on a P/E of 13.

Continuing shortages of chips leading to fewer new cars and higher second-hand car prices have been very positive for Vertu’s shareholders in recent times. That fortuitous set of circumstances won’t last forever though. But if the new car market remains constrained for much of this year, the company could do well.

What’s not clear right now is how much of the share price gains will fall away as and when market conditions normalise. That’s the biggest risk I see when it comes to investing in Vertu – or indeed any – of the car dealers right now.

I think Vertu is a very good penny stock and is potentially a bargain, but I won’t be re-adding it to my portfolio, simply because of the market uncertainty.

South African miner Sylvania Platinum (LSE: SLP) is a share I hold. It’s also cheap. The shares trade on a P/E of only three. That’s staggeringly low, even compared to many other miners.

That’s a reflection of 2021 being a tough year for the company. Prices of the metals it processes – particularly rhodium – fell substantially in the second half of the year. At the same time costs rose. That’s a double whammy that really hit the shares. As I’ve cautioned before, mining is an inherently difficult and cyclical business. And operating in South Africa, which has seen civil unrest, won’t have helped the share price either. 

Overall though, the shares are dirt-cheap and I’ll be keeping them in my portfolio for the foreseeable future. If the price of rhodium, in particular, rises this year the shares could recover strongly.

Building back better

Another cheap penny stock I’ve come across is Speedy Hire (LSE: SDY). Its price-to-book ratio is 1.47, which is incredibly low. As an aside, it was a key metric for Warren Buffett’s mentor, Benjamin Graham, and is important for many value investors. 

The tools and equipment rental specialist recorded a 29.9% year-on-year improvement in EBITDA for the six months ended 30 September, to £49.1m, while its adjusted operating profit was £9.9m higher at £16.2m.

The company said artificial intelligence has meant it’s been better able to utilise its assets, which in an asset-heavy business is important. The more it rents out, the better it’s going to do financially and in turn for shareholders.

The concern with such a business is the need for continuous investment in equipment. Many investors prefer asset-light businesses that can scale more easily. Speedy Hire is also very exposed to the construction market. Any slowdown in building in the UK, in particular, would hurt the company and the share price. I’ll keep an eye on Speedy Hire but have no plans to add the penny stock as a new investment.

Vertu Motors, Sylvania Platinum and Speedy Hire all look cheap on slightly different metrics. The standout one that appears very undervalued to me though is Sylvania Platinum. That’s why I hold the shares and will likely add more. 

As such, here are three top penny stocks I would acquire for the year ahead. 

Stocks to buy in 2022

The first company is the photo booth and coin-operated washing machine business Photo-Me (LSE: PHTM). I have always liked this enterprise because it is highly cash generative. Once it has bought and installed its photo booths, it does not need to spend significant sums maintaining the asset.

As a result, the company has a robust balance sheet and relatively attractive profit margins. It has also paid out a lot of cash to investors with dividends in the past. The firm last paid a dividend in 2018. As profits rebound after the pandemic, I think the corporation will likely look to restore its payout. 

Unfortunately, Photo-Me also has some challenges to overcome. Consumer trends are unpredictable, and the market is becoming more competitive. These are the biggest threats to the group’s business model right now. It has been able to navigate these threats in the past, but past performance should never be used to guide future potential. 

Penny stocks for growth

One theme I am building exposure to in my portfolio for 2022 is construction. The sector has quickly recovered from the pandemic, which is good news for companies like Speedy Hire (LSE: SDY). 

Analysts believe the company’s earnings will jump around 30% this year and a further 20% in 2023. This will take profits to a multi-year high. In fact, if the corporation hits these projections, it will earn more in the next two years than it did in the last six. I think these numbers illustrate the company’s potential over the next couple of years. 

Of course, there is no guarantee the company will hit these growth targets. If the economy starts to struggle again, the construction sector will be the first to suffer in any downturn. Speedy’s growth could come shuddering to a halt in this scenario. This is the most considerable risk facing the corporation right now. 

A return to outsourcing

The final company I would buy for my portfolio of penny stocks is outsourcer Mitie (LSE: MTO). Over the past couple of years, this company has struggled to earn a consistent profit. That will change over the next two years, according to City analysts.

If the corporation can return to profit and stay there, I think the stock deserves a re-rating. The shares are selling at a single-digit price-to-earnings (P/E) multiple. If the company returns to growth, the market may reward the stock with a higher group multiple. This could lead to a substantial return on the current share price. 

Still, this is far from guaranteed, which is why I would only buy the stock as a speculative position for my portfolio. Some challenges it could encounter as we advance include higher wage costs resulting from inflation and higher interest costs. 

DIY boom

Speedy Hire, often known as just Speedy, is a provider of tools and equipment hire. It has over 200 depots across the UK and Ireland with over 300,000 itemised assets available for hire. Its 46,000 plus customers include budding DIY enthusiasts as private customers as well as large construction and infrastructure firms.

The pandemic negatively affected a lot of industries but DIY and construction was booming. Many DIY enthusiasts emerged from lockdown and larger construction firms saw operations remain largely uninterrupted. This demand has led to a spike in performance for many construction and DIY-related stocks.

A penny stock is one that trades for less than £1. As I write, Speedy shares are trading for 65p. At this time last year, shares were trading for 4% more, at 68p. At current levels Speedy looks cheap to me based on recent performance and its outlook.

Why I like Speedy

1. A notable rise in construction projects, commercial and personal, during the pandemic period as well as since reopening, is good news. Speedy can benefit from this rise in demand for its products and services. In addition, the UK government has committed to spending £100bn on infrastructure in the next few years. Speedy is in a unique position as larger firms tend to hire specialised tools and avoid the costly outlay of one-off purchases. Even many retail consumers now hire a tool for projects rather than buy it, use it once, and leave it in the garage to rust and take up space. I am guilty of the latter, unfortunately.
2. Speedy’s recent performance confirms my assertions of higher demand for its products. A half-year report for the period ending 30 September, released in November, made for excellent reading. It reported that revenue had increased by over 28% compared to the same period last year. Profit increased by £14.1 compared to last year and net debt had decreased too. These positives led to an interim dividend of 75p per share. A penny stock with a dividend yield of over 2% deserves my attention.
3. The outlook seems positive too. Analysts reckon the share price could go as far as 90p, which means there is room to grow based on current levels. In addition, Speedy has continued to move with the times and is undergoing a digital transformation to make its products and services more accessible.

Penny stocks have risks too

Speedy does have risks too. Rising inflation rising costs are a worry. Speedy has raised prices to offset this, but if it continues to do so, it risks losing customers. Furthermore, the current supply chain crisis could affect operations and performance as well as any investor returns too.

Overall I feel Speedy could be a good addition to my portfolio for the long term and I would buy shares at current levels. It has capitalised well on recent demand and has a long track record of performing consistently too. I know past performance is not always a guarantee of future performance, however. With infrastructure spending to continue and a dividend as well, Speedy looks like a good penny stock option for me right now.

Penny stock to buy: Speedy Hire

I wrote about Speedy Hire just this week, saying that it has excellent growth potential. I also said that I didn’t think the share price reflected the positive outlook for the company.

Well, SDY released its half-year results ending September on Wednesday. Management said there has been continued strong momentum in the business, and that the company is well positioned for further growth.

Revenue came in at an impressive £186.6m, or a 28.2% growth rate from the same period last year. Profit before tax was even better, increasing to £14.6m, from £4.1m previously. Overall, results were ahead of current market expectations. Four analysts updated their ‘buy’ rating on the stock, with an average target price now of 90.5p. At time of writing, the share price is 68p, so there could be more room to run.

Indeed, market conditions are remaining positive, which I think bolsters the case for further growth ahead. Major projects within the infrastructure and construction sectors are increasing demand for Speedy Hire’s equipment-for-hire services.

The company is also improving its digital capabilities, which should strengthen its market position. Its website boasts a four-hour delivery and collection promise, and a new platform is being built to simplify the customer journey. I think this could boost sales further as online experiences are vital these days.

The bear case for this penny stock

As with any company, there are always risks to consider. Speedy Hire is no different.

The greatest risk, in my view, is a repeat of the lockdowns we experienced in 2020. In fact, the share price was crushed in March of that year. It fell from a high of 86p all the way down to 35p. Covid cases are rising again in Europe, so for me, this is something to keep in mind.

Then there’s the risk of rising inflation. In the results, Speedy Hire said it was able to raise its prices, which offset cost pressures the business experienced. But I remain cautious here as the company won’t be able to raise prices too far without losing customers.

Speedy Hire’s valuation

The shares look reasonably valued considering the growth expectations. On a price-to-earnings ratio, the multiple is 14.5 for this year. This falls to 12 for the following year. I think this is cheap when earnings are forecast to grow in double-digits in each of these years.

Final thoughts

On balance, I think this penny stock is a buy for my portfolio. The growth forecasts are attractive, and analysts are predicting a much higher share price in the months ahead. There are risks to consider, of course, mainly from another economic lockdown. But I’ll be looking to buy the shares.

Here are three penny stocks that have explosive earnings forecasts for this year.

The road to recovery  

The first penny stock is Stagecoach Group (LSE: SGC). It’s a passenger transportation company operating bus routes around the UK. Pre-Covid, the shares traded around the 140p mark, but they crashed heavily in March 2020 and remain in penny stock territory at close to 77p.

But I like the potential recovery play here. In a world where staycations are more popular, Stagecoach’s bus services should be in greater demand. Vehicle mileage has recovered to 94% of 2019 levels, showing the recovery is on track.

Earnings are forecast to grow 54% this year. Next year could be even better, as earnings are expected to grow an explosive 175%.

There are risks to consider though. Any new lockdown would be a significant blow to the company. There are also negotiations ongoing over a potential merger with National Express that could disrupt normal business operations. I would have to get comfortable that this is the best thing for the business before I bought any shares.

But I do like the potential growth here.

Equipment for hire

Another penny stock I like the look of is Speedy Hire (LSE: SDY). It’s an equipment-for-hire company for the construction industry. Ashtead Group that’s listed on the FTSE 100 is the highly successful and larger company in this sector.

The SDY share price has almost flatlined for a number of years now, but was particularly volatile around the onset of the pandemic last year. The company relies heavily on the construction sector for revenue generation, so the volatility is understandable. It’s a risk to consider if we experience another lockdown as the business would suffer.

However, it’s the growth in earnings I’m most attracted to. For this year, earnings are forecast to rise 70%. In the following year, they’re still forecast to grow a respectable 21%. Of course, I have to remember that both here and with SGC, forecasts could always be missed.

I don’t think the shares are up to speed with the potential earnings growth. The current price-to-earnings ratio is only 15, which I consider good value for my portfolio given the growth potential.

Energy advice

Finally, I like the look of Inspired Energy (LSE: INSE). It’s a leading commercial energy advisor, providing insight and consultancy for UK businesses. It says such companies spend £17.7bn annually on energy, so there’s a lot of potential for cutting costs and lowering overall energy consumption. Earnings are forecast to grow 88% this year, and a not too shabby 16% the year after.

There’s a great angle on Environmental, Social and Governance investing here too, as Inspired Energy helps businesses to reduce their environmental impact.

But rising energy prices may be an issue for the firm. Smaller energy providers have gone into administration, which makes it more challenging to switch to cheaper tariffs. It’s a risk to consider before I buy the shares.

And this bodes well for penny stock Speedy Hire (LSE: SDY) which rents out tools, plant and specialist equipment.

These supply shortfalls could well dent low-cost Speedy Hire’s ability to exploit the economic recovery. But I’m encouraged by the rate at which the penny stock is pulling market share away from its customers, something which could offset this problem.

Besides, I think a forward price-to-earnings growth (or PEG) ratio of 0.4 leaves a decent margin of error for UK share investors. A reading below 1 suggests a stock could be undervalued by the market.

Flying ace

I won’t pretend that the travel industry isn’t laden with risk. The rampant Delta variant means Covid-19 cases are rising strongly across much of the globe. Still, at 15 euro cents per share, I think the Ryanair (LSE: RYA) share price is cheap enough to merit serious attention.

The UK airline is expected to endure another year of losses in this fiscal year (to March 2022). But analysts think it will swing strongly back into profit in fiscal 2023. So the business trades on an undemanding forward price-to-earnings (P/E) ratio of around 12 times.

I think a mix of strong pent-up demand and sturdy consumer spending power (it’s been estimated that Britons have amassed £200bn worth of savings during the Covid-19 crisis) will light a fire under plane ticket demand from next year.

Ryanair recently reported that it shifted 9.3m passengers in July. This was up from 4.4m in the same month last year and illustrates the scale of plane ticket demand and the impact of Covid-19 vaccine certificates. This was much better than the 7m-9m travellers the penny stock had previously forecasted in the summer months.

A dirt-cheap penny stock

I think Pendragon (LSE: PDG) could be another top stock to ride for the economic recovery. This is because, as with travel and leisure, the amount people spend on automobiles tends to rocket when broader consumer confidence improves.

I also think the car retailer should benefit strongly from rising environmental concerns fuelling electric vehicle (EV) demand. And this is a driver that could support this UK retail share for years to come.

Think tank the Climate Change Committee believes there will be 23.2m EVs on the road by 2032. That compares with 430,000 at the end of last year.

These numbers could disappoint though, if steps to improve charging infrastructure in Britain fail to take off.

Highly-cyclical stocks like Pendragon would also suffer if the twin threats of Covid-19 and Brexit damage consumer spending power.

However, I think an ultra-low P/E ratio of 6 times for 2021 makes this a penny stock worthy of my attention.

Here are two such penny stocks I’m thinking of adding to my shares portfolio.

Medical marvel

I think BATM Advanced Communications (LSE: BVC) — which trades around 92p — could be one of the best stocks to buy in the post-coronavirus environment. Thanks to its role as a supplier of medical diagnostic and testing equipment, revenues at its Bio-Medical Division doubled in 2020. I expect sales of its product to remain strong amid what could be a long road out of the pandemic. A recent British Medical Journal paper, for example, suggested that the coronavirus “will not be eradicated but will become endemic.”

BATM generates 70% of its income from the manufacture of medical products. The remainder is sourced from another industry I expect to take off over the next decade: that of networking and cyber security technology. I’m tipping demand here to take off as the world becomes more digitalised, and particularly as e-commerce grows and flexible working methods become more popular.

A word of warning, though. City brokers think BATM’s earnings will soar 25% year-on-year in 2021. As a result this penny stock trades on an elevated forward price-to-earnings (P/E) ratio of around 50 times. This wouldn’t discourage me from investing, however. I think this valuation reflects the excellent opportunities the company has across both divisions. But such a high multiple could prompt a sharp share price reversal if the business encounters trouble.

A cheap UK penny stock on my radar

Another sub-£1 share I’m thinking of buying is Speedy Hire (LSE: SDY). I don’t think its current price of 72p reflects the stock’s exciting profits outlook. Today the tool, plant and equipment rental company commands a forward price-to-earnings growth (PEG) ratio of just 0.4.

A reading below 1 suggests that a stock could be undervalued by the market. City analysts think annual earnings here will rise 37% this fiscal year (to March 2022) as the construction industry bounces back. I wouldn’t just buy Speedy Hire because I think the sector should experience strong and sustained growth beyond the near term, though. I’m encouraged by the rate at which rental giant’s winning share from its rivals. It recently signed major contracts with the likes of Network Plus, MWH and Horbury.

I’m mindful of the fact that the stock is a highly-cyclical one. As a consequence its recovery could be derailed by the twin impacts of Covid-19 and Brexit on the domestic economy. Still, at current prices I think it could be considered too cheap for me to miss.

Expensive but excellent

Okay, let’s get the bad stuff out of the way first. While I like tech share 1Spatial (LSE: SPA) a lot, its shares don’t come cheap. In fact, an elevated forward price-to-earnings (P/E) ratio of 58 times is the sort of valuation that could cause a share price to come crashing down if news flow suddenly deteriorates.

However, I think it could be argued that this penny stock is worthy of such a premium. Why? Well, put simply, its technology allows IT users to share and combine data from many sources in different places. This puts it in great shape to ride the growth of remote working following the Covid-19 crisis.  In fact, the company’s latest financials last month showed order levels continue to grow at an encouraging rate.

A dirt-cheap penny stock

A strong construction sector bodes well for the profits outlook at Topps Tiles (LSE: TPT) too. This penny stock sells to both the public and trade customers, meaning it’s riding the surge in home improvement projects and the strong housing market to excellent effect. Like-for-like sales on a two-year basis soared 12.9% in the 13 weeks to 26 June, latest financials showed.

Topps Tiles could see sales slump again if the Covid-19 crisis worsens. Not only could the company have to shutter its stores again, but a fresh hit to the economy could damage demand for its products too.

But I believe these threats are baked in at current prices. City analysts think annual earnings here will rise almost 260% in the current financial year to September. This leaves the company trading on a forward price-to-earnings growth (PEG) readout below 0.1.

Oh, and right now, the Topps Tiles share price carries a meaty 4.2% dividend yield. This is superior to the 3.5% forward average for UK shares.

Another bargain UK share

Speedy Hire (LSE: SDY) shares some of the same qualities as Topps Tiles. For example, demand for its rental equipment is rising strongly, thanks to the strength of the British construction industry. The penny stock saw hire revenues in the UK and Ireland slump 11% in the last fiscal year (to March). But revenues climbed 4% in the final three months as trading conditions improved.

Speedy Hire is also a penny stock that offers plenty of bang for your buck. City brokers think annual earnings will rise 38% here in fiscal 2022, resulting in a forward PEG of just 0.4. Any reading below 1 suggests a stock could be undervalued.

On the negative side, Speedy Hire could see sales take a tumble if Covid-19 cases rise to the point at which construction sites are closed and social distancing comes back with a vengeance. Still, at current prices, I still think this is a great-value penny stock to buy.