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Tool Rental company is an equity tool
This morning HSS posts audited results for year ending December 2016.
The positive being revenue up £342 mill vs £312 from the previous year. However, this is where the joy ends. Adjusted EBITDA is unchanged indicating no follow through benefit from the increased revenue and reported loss before tax actually increasing from -£14 mill to -17 mill (approximately).
The look-back for over 5 years worth of previous data show an equally dim picture with the company failing to post any form of profit for shareholders over the entire period of time. An example of a company which one must question why there are publicly traded shares given that the is nothing on the table for equity holders. More-so, looking at the net asset value per share over the same period and including the current period, one observes a negative value whereas the market capital of the stock is positive, indicating further losses for equity holders on the cards unless an immediate turnaround occurs.
How would a turnaround occur ?
[1] reduction in management costs (possible, but will incur management resistance).
[2] operating margins to improve (less likely, governed by the market).
[3] lower borrowing cost (unlikely given the above, plus point in the rate and credit cycle).
[4] improved efficiency – reduced staff costs, potential synergies (maybe).
Summary
Given than none of the above are likely, unless the share price drops significantly to what one may deem to be the price of a low cost option of a turnaround, HSS stock should continue to decline as has been the case. Unsurprisingly, the stock opened this morning down 5% on the back of the above results.