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№ 195 38 filings · 2022-02-11 → 2026-06-05

HERCULES PLC

HERC
Construction and Materials Share price 38.00p Market cap £31m Overall fit 165 /1000

Poor fit for this strategy: essentially zero AI-receiver exposure, low operating leverage (labour pass-through, 15% gross margin), qualified audit opinion and elevated related-party financing. Valuation roughly fair but offers no asymmetry on the dimensions this investor cares about.

Fair value range 22p–35p Mid case · £23m
Absolute upside -24.9% vs current market cap
Conviction 3/5 confidence in fair call
Supports the call
  • Labour-supply multiple framework brackets current price
  • Named supplier on visible long-cycle UK infra programmes
  • FY25 audited disclosure gives full balance-sheet view
Limits the call
  • Qualified audit opinion leaves underlying cost base uncertain
  • H1 26 EBITDA halved YoY; FY26 is heavily H2-weighted
Methodology

Underlying EV/EBITDA peer multiple, cross-checked vs PE on underlying EPS

In one line · bull case

Cheap-looking exposure to UK infrastructure labour cycle (HS2, AMP8, transmission, nuclear) at ~3–4x underlying EV/EBITDA, with optionality from Power & Energy specialist labour.

In one line · biggest risk

Qualified audit opinion and control failures could foreshadow further write-downs while H1 26 underlying profitability weakens and liquidity tightens.

Drivers
AI beneficiary 8 /100
Construction labour body-shop; no AI revenue or AI-driven margin expansion thesis exists.
Operating leverage 25 /100
~85% variable cost base, 15% gross margin pass-through; admin costs rose faster than revenue FY25.
Earnings vs expectations 45 /100
Top-line beats, but FY25 PBT missed sell-side £3.3m vs £0.8m and H1 26 EBITDA halved.
Growth momentum 62 /100
Revenue +19% FY25 and +8% H1 26; acquisitions broaden mix into higher-growth power & energy.
Moat 28 /100
Some framework positions and a digital onboarding app, but services are commoditised and contestable.
Earnings quality 25 /100
Qualified audit opinion; goodwill impairment one year after acquisition; weak H1 26 cash conversion.
Management quality 35 /100
Operationally delivered growth and M&A, but control failures, dividend cancellation and related-party financing.
Cyclicality 65 /100
Tied to UK infra cycles (HS2, AMP, RIIO, nuclear) — long-cycle and government-backed but cyclical.
Leverage 58 /100
Net debt ~£10m + £4.3m contingent + £6m related-party loan; ~2x underlying EBITDA and tightening cash.
Value-trap signals · 6
  • Qualified FY25 audit opinion on training/consultancy expenditure
  • Related-party loan from NED and related-party property lease from CEO entity
  • 54% revenue concentration from one customer
  • Dividend cancelled after FY24 1.72p
  • Goodwill impairment on Future Build within 1 year of acquisition
  • H1 26 operating cash outflow of £2.4m; cash down from £7.2m to £2.7m

HERCULES PLC (HERC) — Investment Research Note

Executive summary

Hercules is a UK AIM-listed labour supply and civils contractor servicing tier-1 infrastructure contractors (HS2, water AMP8, power transmission, early-stage Sizewell C), with FY25 revenue of £121.2m (+19% YoY) and underlying EBITDA of £6.4m. Across the period covered, the group has scaled revenue ~3× since the 2022 IPO via organic HS2 ramp-up plus a flurry of acquisitions (Future Build, Advantage NRG, QTT, Lyons Power Services), but profitability has lagged due to integration costs, NIC headwinds, IT overhaul and — most importantly — a qualified FY25 audit opinion stemming from undocumented training/consultancy expenditure that led to a six-week AIM suspension in April–May 2026. The single most important point for valuation today is that the recent recovery in the share price (from 0.34p mid-suspension to 29p) is occurring against a backdrop of tightening cash, a related-party loan, weak H1 26 profitability and an audit qualification — so the price discounts mostly known problems, but there is no meaningful AI/operating-leverage angle for this strategy.

Fair value estimate

  • Methodology: blended EV/EBITDA multiple on underlying EBITDA, sense-checked against a multiple of underlying EPS.
  • Inputs:
    • FY25 underlying EBITDA £6.4m; H1 26 run-rate suggests FY26 underlying EBITDA of ~£5–6m (H1 was £1.7m vs £2.6m prior; mgmt guides to H2 weighting and £14m of Civils wins) 2026-06 H1, 2026-05 final results.
    • Net debt £9.9m (bank £12.1m + leases £5.0m – cash £7.2m at Sep-25); £4.3m deferred contingent consideration plus a £6m related-party loan from Wasdell at 8%.
    • Peer staffing/specialist contractor multiples: 5–7× EV/EBITDA for sub-scale UK labour supply / civils.
  • Fair value EV range: 5–7× £5.5m mid-case underlying EBITDA = £27.5m–£38.5m; subtract net debt+contingent ~£14m ⇒ equity £14m–£25m, plus a small premium for the asset-light bits (Academy, Advantage NRG growth). Round to equity value £18m–£28m, or 22p–35p per share on 80.6m shares.
  • Latest disclosed market cap: £23.4m at 29p — sits inside the range.
  • Upside/downside vs current 29p: range −24% to +21%; midpoint ~28.5p, i.e. roughly fair value, modest ~0% upside.

Sector context

  • Sector classification confirmed: Industrials / Construction & Materials (ICB), specifically labour supply and civil engineering services.
  • Quality profile is below typical peers: lower gross margin (~15%) than scaled engineers; balance sheet more stretched than peer average; audit qualification is unusual.
  • Listed peers (loose comparators): Renew Holdings (RNWH), Hill & Smith (HILS) (much larger/higher quality), Costain (COST), and on labour supply specifically the now-private Morson Group; Sthree (STEM) for white-collar contracting.

Investment thesis (3 bullets)

  1. Multi-decade infrastructure spend cycle: AMP8 water (£104bn 2025–30, vs £51bn AMP7), HS2 Phase 1, RIIO-3 power, Sizewell C and a stated £725bn UK 10-year infrastructure plan all underpin demand for the Group's core labour supply 2026-05 final results. Hercules is a named supplier on HS2 (Phase 1 northern section) and is positioned in the Advantage NRG/Lyons Power businesses for the transmission/distribution build-out.
  2. Strategically expanded into Power & Energy: Advantage NRG (overhead linesmen) acquired June 2025 contributed £9.2m revenue / £1.9m PAT post-acquisition; Lyons Power Services completes the offering 2025-06 acquisition / 2026-05 final results. This is genuinely scarce skilled labour into a structurally short market and is a higher-margin franchise within the group.
  3. Valuation discounts known issues: post-suspension the stock trades at ~3–4× FY25 underlying EBITDA on EV basis (£33m EV / £6.4m), at the low end of peer multiples, with current 29p already inside a defensible fair-value range 2026-05 results + market data.

Key risks (3 bullets)

  1. Qualified FY25 audit opinion: auditors S&W could not verify training/consultancy expenditure for a "small number" of suppliers; the Board imposed a scope limitation and refused to extend further investigation 2026-05 final results, auditor's report. Remediation expected by Sep 2026 but the disclosure raises material questions on internal controls and creates real reputational/regulatory tail risk.
  2. Tightening liquidity and related-party financing: cash fell to £2.7m at Mar 2026 from £7.2m at Sep 2025 2026-06 H1; £6m 8% loan from Wasdell Holdings (controlled by NED Martin Tedham) is funding acquisitions; £16m IGF invoice facility renews Oct 2026; dividend cancelled. The structure is workable but fragile if AMP8 ramp slips further.
  3. Customer concentration and margin pressure: one customer = 54% of FY25 revenue (£65.1m); another 11% 2026-05 final results. Gross margin compressed to 15.0% (FY25) and 15.0% H1 26 (vs 14.7% FY24), and underlying EBITDA more than halved in H1 26 vs H1 25 (£1.7m vs £2.6m) — the high pass-through model offers limited absorption when projects slip or NICs rise.

Operating leverage

This is a low operating-leverage business, which is the most important point for this investor profile. Cost base is overwhelmingly variable: FY25 cost of sales was £103m on £121m revenue (~85% of revenue), and within that almost all is direct labour that scales 1:1 with billable hours. Gross margin sits at 14.7–15.0% across two years 2026-05 final results. Administrative costs grew from £11.6m to £16.4m FY24→FY25 (+41% on +19% revenue) as the group invested in ERP, business development and acquisitions — i.e. operating leverage worked the wrong way. On a 10–20% upside revenue surprise (say £133–145m FY26), incremental gross profit at ~15% would be ~£1.8m–£3.6m; with central costs largely fixed, perhaps 60–70% drops through, implying ~£1.1–2.5m additional EBITDA — meaningful but not a multiple. The Academy and Advantage NRG/LPS specialist labour franchises offer modestly higher contribution margins, but these are still skilled-labour pass-through models, not platforms. There is no SaaS/network/spare-capacity dynamic here. 2026-05 final results segmental note

Value-trap signals

  • Qualified audit opinion in respect of training/consultancy supplier expenditure (FY25).
  • Related-party loan and lease structure: £6m loan from NED Tedham's Wasdell; £2.3m lease liability to CEO-controlled Hercules Real Estate Ltd (44.5% shareholder).
  • Customer concentration: 54% from one customer; HS2 northern section is one client.
  • Cancelled dividend (no final FY25; no interim FY26) after 1.72p total in FY24.
  • Goodwill impairment of £0.6m on Future Build only one year after acquisition.
  • Working capital cash absorption: H1 26 operating cash outflow of £2.4m.
  • Auditor's report references non-compliance with internal policies and limitations of scope — including unable to determine if adequate records have been kept.

Earnings vs. expectations

  • FY24 (Jan 2025): revenue £101.9m and adj EBITDA £5.1m — ahead of consensus (£95.1m / £4.5m). Beat 2024-10 trading update, 2025-01 final results.
  • FY25 trading update (Oct 2025): guided "over £118m" vs consensus £112.1m — beat on revenue.
  • Feb 2026 update: revealed FY25 PBT would be ~£0.8m vs consensus £3.3m, due to non-underlying items including extended audit and IT system implementation costs — miss on bottom line vs sell-side, met on underlying EBITDA.
  • FY25 final (May 2026): revenue £121.2m beat, underlying EBITDA £6.4m beat (vs consensus £6.1m); statutory PBT £0.9m vs prior £2.2m. Mixed.
  • H1 26 (June 2026): revenue +8% to £59.2m, underlying EBITDA halved to £1.7m (H1 25: £2.6m). Management characterises this as H2-weighted and consistent with strategy, but it is a clear miss vs. prior-year run-rate 2026-06 H1.

Pattern: top-line consistently beats; underlying profitability beats prior-year only when the business is not investing heavily; statutory profitability has been pressured by non-underlying costs in FY25 and H1 26, materially diverging from the "underlying" narrative.

Conviction

Conviction: 3 (moderate).

Anchors: (i) consistent labour-supply revenue trajectory and named-supplier status on HS2/AMP8 provide a defensible top-line model; (ii) a labour-supply multiple framework is the right valuation methodology and arrives at a tight range that brackets the current price; (iii) FY25 audited disclosure gives a complete view of the balance sheet and contingent liabilities.

Limits: (i) the audit qualification and unresolved control issues mean the FY25 cost base could yet be misstated, and underlying EBITDA could be revised; (ii) H1 26 trajectory is markedly weaker than the bull case requires, and the FY26 weighting is heavily back-end loaded — execution risk is high; (iii) the 0.34p April 2026 print in the market-data feed suggests data-feed anomalies during the suspension; the realised post-restoration price is what anchors valuation.

Filings consulted · 50

Every document the LLM read for this note. Click any row to open the source.

  1. 2026-06-05Interim Results2026-06-05_9604371_interim-results.md0.90
  2. 2026-05-22Restoration Hercules Plc2026-05-22_9581985_restoration-hercules-plc.md0.60
  3. 2026-05-22Final Results And H1 Trading Update2026-05-22_9581200_final-results-and-h1-trading-update.md1.00
  4. 2026-04-01Suspension Hercules Plc2026-04-01_9502735_suspension-hercules-plc.md1.00
  5. 2026-03-23Delay IN Final Results And Temporary Suspension2026-03-23_9487199_delay-in-final-results-and-temporary-suspension.md1.00
  6. 2026-02-10Update ON Final Results2026-02-10_9423435_update-on-final-results.md1.00
  7. 2026-01-19Update ON Release OF Final Results2026-01-19_9363952_update-on-release-of-final-results.md1.00
  8. 2025-11-20Investor Presentation2025-11-20_9245504_investor-presentation.md0.59
  9. 2025-10-15Acquisition OF Lyons Power Services Ltd2025-10-15_9171324_acquisition-of-lyons-power-services-ltd.md0.64
  10. 2025-10-02Trading Update2025-10-02_9145057_trading-update.md0.72
  11. 2025-06-27Acquisition OF Advantage Nrg Ltd2025-06-27_8950936_acquisition-of-advantage-nrg-ltd.md0.64
  12. 2025-06-17Interim Results2025-06-17_8932456_interim-results.md0.77
  13. 2025-06-12Acquisition OF Quality Transport Training2025-06-12_8925302_acquisition-of-quality-transport-training.md0.64
  14. 2025-06-11Notice OF Results Amp Investor Presentation2025-06-11_8923047_notice-of-results-amp-investor-presentation.md0.59
  15. 2025-05-20Change OF Name2025-05-20_8886316_change-of-name.md0.39
  16. 2025-05-07Trading Update2025-05-07_8864030_trading-update.md0.55
  17. 2025-03-17Result OF Agm2025-03-17_8782755_result-of-agm.md0.20
  18. 2025-03-17Agm Statement2025-03-17_8781138_agm-statement.md0.26
  19. 2025-02-25Posting OF Annual Report And Notice OF Agm2025-02-25_8751918_posting-of-annual-report-and-notice-of-agm.md0.62
  20. 2025-02-11Disposal OF Suction Excavator Business2025-02-11_8730219_disposal-of-suction-excavator-business.md0.49
  21. 2025-01-13Final Results2025-01-13_8684193_final-results.md0.65
  22. 2025-01-06Strategic Update And Notice OF Results2025-01-06_8647155_strategic-update-and-notice-of-results.md0.62
  23. 2024-10-09Trading Statement2024-10-09_8474251_trading-statement.md0.55
  24. 2024-09-06Result OF Subscription And Placing2024-09-06_8404184_result-of-subscription-and-placing.md0.46
  25. 2024-09-06Proposed Placing Subscription And Secondary Sale2024-09-06_8404078_proposed-placing-subscription-and-secondary-sale.md0.46
  26. 2024-06-03Interim Results2024-06-03_8236997_interim-results.md0.41
  27. 2024-05-13Trading Update2024-05-13_8190777_trading-update.md0.38
  28. 2024-03-11Result OF Agm2024-03-11_8081863_result-of-agm.md0.14
  29. 2024-03-11Agm Statement2024-03-11_8080781_agm-statement.md0.18
  30. 2024-03-11Agm Statement2024-03-11_8080783_agm-statement.md0.18
  31. 2024-02-09Posting OF 2023 Annual Report And Notice OF Agm2024-02-09_8029975_posting-of-2023-annual-report-and-notice-of-agm.md0.43
  32. 2024-01-15Final Results2024-01-15_7988442_final-results.md0.45
  33. 2023-11-30Acquisition OF Future Build Recruitment2023-11-30_7911621_acquisition-of-future-build-recruitment.md0.34
  34. 2023-10-17Trading Update2023-10-17_7820261_trading-update.md0.38
  35. 2023-06-05Interim Results Replacement2023-06-05_7560322_interim-results-replacement.md0.23
  36. 2023-06-05Interim Results2023-06-05_7558374_interim-results.md0.23
  37. 2023-05-16Trading Update2023-05-16_7528078_trading-update.md0.21
  38. 2023-03-13Result OF Agm2023-03-13_7432538_result-of-agm.md0.07
  39. 2023-03-13Agm Statement2023-03-13_7396616_agm-statement.md0.10
  40. 2023-02-27Result OF Placing2023-02-27_7235726_result-of-placing.md0.17
  41. 2023-02-27Annual Report Notice2023-02-27_7236657_annual-report-notice.md0.24
  42. 2023-02-13Notice OF Agm2023-02-13_7449835_notice-of-agm.md0.07
  43. 2023-01-16Full Year Results2023-01-16_7435825_full-year-results.md0.25
  44. 2022-10-17Trading Update2022-10-17_7349296_trading-update.md0.21
  45. 2022-06-08Interim Results2022-06-08_6867143_interim-results.md0.23
  46. 2022-05-25Result OF Agm2022-05-25_7026639_result-of-agm.md0.07
  47. 2022-05-25Agm Statement2022-05-25_6977245_agm-statement.md0.10
  48. 2022-03-30Notice OF Agm Amp Posting OF Audited Annual Accounts2022-03-30_7094474_notice-of-agm-amp-posting-of-audited-annual-accounts.md0.07
  49. 2022-03-28Final Results2022-03-28_7057061_final-results.md0.25
  50. 2022-02-11Investor Presentation2022-02-11_6802380_investor-presentation.md0.17

This research note was authored by a large language model after reading 38 regulatory filings published between 2022-02-11 and 2026-06-05. Each citation refers to a specific RNS announcement in the underlying data set. The note is an opinion, not advice. Do your own work before risking capital.