Van Elle Holdings: A Hidden Gem in Infrastructure's Growth Cycle

Van Elle Holdings plc (LON:VANL) has faced near-term headwinds, including project delays and margin pressures, but beneath the surface lies a company primed to capitalize on long-term infrastructure trends. With a robust balance sheet, strategic expansions into high-growth sectors, and a discounted valuation relative to intrinsic worth, the current share price presents a compelling entry point for investors willing to look beyond short-term noise.

Financial Fortitude Amid Challenges

Van Elle's financial health remains a pillar of stability. As of June 2024, the company reported total equity of £52.73 million, supported by total assets of £95.06 million, with liabilities declining by 10.68% in Q2 2024. This balance sheet resilience underscores its ability to weather temporary setbacks. While 2025 pretax profit dipped to £4.2 million (down from £5.6 million in 2024), the underlying EBITDA grew to £13.1 million, reflecting operational efficiencies.

The company's cash flow dynamics, though strained by project delays, remain manageable. A key metric to watch is working capital management, as Van Elle focuses on optimizing liquidity through delayed projects and cost discipline.

Strategic Expansions into Growth Sectors

Van Elle's pivot toward energy and water infrastructure—sectors aligned with UK and global decarbonization goals—positions it to benefit from multi-year government spending programs.

• Energy Sector: The acquisition of Albion Drilling in October 2024 bolstered its capabilities in Scotland's energy projects, with contracts worth CAD$9 million expected to contribute from Q4 2025 onward. Additionally, its partnership with Wood Transmission & Distribution (a UK energy group) secures an eight-year pipeline of piling works for electricity networks.
• Water & Rail Infrastructure: In Canada, Van Elle's rail division secured a £11 billion rail upgrade framework, while domestic projects like the Metrolinx renewals (worth CAD$9 million) underscore its role in critical national infrastructure.

These moves align with the UK government's pledge to modernize “creaking” energy and water systems, offering Van Elle a secular growth tailwind.

Addressing Near-Term Concerns

Critics point to project delays impacting 2025 earnings, with over 40 UK projects pushed to 2026. While this has dented short-term cash flow, the order book grew to £41.6 million as of October 2024, up from £35.1 million a year prior. Management's focus on geographic diversification (e.g., Canada's rail sector) and strategic partnerships mitigates reliance on any single market.

The Canadian division's underperformance, now under review, reflects execution risks in new markets—but also signals a disciplined approach to capital allocation.

Investment Thesis: A Discounted Play on Long-Term Value

Van Elle's shares currently trade at 34.69 pence, a 9.9% drop from 2024 highs and 43% below its DCF-derived fair value of £0.69 per share. This discount reflects near-term execution risks but ignores the company's intrinsic strengths:
1. Undervalued Assets: Its balance sheet and cash flow stability underpin a net asset value (NAV) of £0.62 per share, higher than the current share price.
2. Catalysts Ahead:
- 2026 Project Pipeline: Delays in 2025 mean a second-half weighted recovery in 2026, with large projects like the Toronto rail framework and UK energy contracts coming online.
- DCF Validation: A £0.69 fair value assumes 2.5% long-term growth—a conservative estimate given infrastructure spending trends.
3. Sector Tailwinds: Governments globally are prioritizing energy/water infrastructure, creating a multi-decade demand backdrop.

Risks to Consider

• Regulatory Delays: Ongoing issues in the UK's building safety sector could prolong project timelines.
• Geographic Exposure: Canada's rail division remains unprofitable, requiring close monitoring.

Conclusion: A Buy with a Long-Term Horizon

Van Elle Holdings offers a compelling risk-reward profile for investors with a 3–5 year horizon. While short-term earnings may lag, its fortress balance sheet, strategic sector exposure, and discounted valuation make it a standout play on infrastructure's growth cycle. The target price of £0.69 implies 95% upside, and catalysts in late 2025 and 2026 could drive re-rating.

Investment Advice: Accumulate positions at current levels, with a stop-loss below 30 pence to protect against further delays. Monitor Q4 2025 earnings and progress on delayed projects for confirmation of recovery.

In an era where infrastructure spending is a global priority, Van Elle's discounted valuation and strategic bets on energy/water projects make it a hidden gem worth staking a claim in.