The Human Screen finds some businesses defy description, so numerous are their activities. The so-called and unhelpfully named “support services” are among them, yet on closer inspection May Gurney isn’t so complicated.

Highlights

• Adjusted operating profit up 20%
• Return on tangible assets: 13%
• Adjusted net profit of ''21m compared to net cash flow of ''38m (''17m after net capital expenditure)
• Net debt including finance lease obligations up 211% to ''49m, 20% of tangible assets.

The Human Screen comments:

Scanning May Gurney‘s FAQ page, a pattern appears. It maintains and fixes things for councils and utility companies and collects and recycles household waste.

The company separates finance lease obligations for plant and vehicles from its debt calculation because the costs are explicitly included in its contracts with customers. The Human Screen has a policy of ‘kitchen sinking’ as much debt as he can find but notes that at the year end May Gurney had more cash than debt if he ignores the leases.

The Human Screen approves of May Gurney’s focus on the first four points in its five point growth plan:

1. Focus on essential services
2. Good service
3. Efficiency
4. Meeting customer needs
5. Acquisitions.

Even when public finances are under pressure, it looks like a stable business. Roads need to be repaired, and bins need to be emptied, and although councils may seek to reduce expenditure that could work both ways for May Gurney because they may outsource more work.

Since the company priorities value over volume when bidding for contracts, profits will probably remain under pressure. May Gurney’s struggled to maintain profitability at pre-credit crunch levels, but it’s still making good returns.

Assuming the cost of debt into May Gurney’s market value, the market price (enterprise value) is ''219m against ''240m of tangible assets on which the company made a 13% return last year.

It’s doing well, and investors can buy it for less than it’s worth on paper.

^HS++ (The Human Screen plans to consider May Gurney for the Thrifty 30 portfolio)