Housing, Infrastructure, Construction & Services
There is no relevant new news from the main HICS stocks this morning. The relevant items that attracted our attention are the two announcements from City Fibre that demonstrate that its model of the roll out of fibre optic cabling for broadband is getting traction.Serco was the leader of the pack yesterday rising 3.6% to 111.3p following its trading update. The update added nothing new but the general trend is that the company is on track and patient investors seem prepared to buy now and wait a few years.The ascent of RTO has been matched by the decline in the share price of the company that bought its IFS operation for a high price, Interserve. The main conundrum for HICS watchers is of course when to look again at the housebuilders.
There is no relevant new news from the main HICS stocks this morning. The relevant items that attracted our attention are the two announcements from City Fibre that demonstrate that its model of the roll out of fibre optic cabling for broadband is getting traction. Yesterday it announced the first call off under its partnership with Capita which will see it connect 109 schools and today there are two further announcements. Firstly, it is to extend the current 90 km installation in Peterborough to accommodate a further 220 sites and secondly it has entered entered a partnership with Gigaclear, a provider of ultrafast broadband to rural areas. The relevance of this is that the company will require experienced partners to lay the cables for it which could be good news for Carillion, Galliford Try and Renew though the hole digging tends to be done by subcontractors. Laying new fibre optic cable in existing road and pavement infrastructure is not cheap,. City Fibre’s model of getting a core customer to fund the project and oversizing the installation to attract new customers is starting to gain some traction, it would seem. We do not cover the stock but it is becoming one to watch after a number of false starts.
Serco was the leader of the pack yesterday rising 3.6% to 111.3p following its trading update. The update added nothing new but the general trend is that the company is on track and patient investors seem prepared to buy now and wait a few years. That may be a good strategy as buying an Institutional size holding when the newsflow turns very positive will not be cheap or easy. At 111.3p the entry point is expensive now but we suspect will look cheap by 2018. Rentokil also performed well, up 2.8% to 193p and it is now trading at levels not seen since April 2007. The company is clearly a safe haven in terms of demand for its core products and will gain from sterling’s dip in terms of translation of earnings, especially from the USA. It is trading on a p/e of 21x so is no longer cheap in the UK context but remains much less expensive than main US rival, Rollins.
The ascent of RTO has been matched by the decline in the share price of the company that bought its IFS operation for a high price, Interserve. IRV fell a further 1.9% yesterday to 260.5p and still there is not a peep from the company about trading issues that would justify the current rating of c 4x prospective p/e. At some point, on a Trading basis there should be a time to buy IRV as there are few signs that it is heading the way of Connaught, Spice and others. Clearly the sale of its Kwikform operations must be going less well than hoped, no surprise in the current climate which could not have been anticipated in February this year. The new Chairman needs to take a grip at some point as credibility is low and shows few signs of changing.
The main conundrum for HICS watchers is of course when to look again at the housebuilders. There is too much ground to cover on that topic in a morning note but we shall cover it soon. Galliford Try closed last night at 911p, near half the level it was at in August last year and with the short term earnings outlook looking better not worse than it did then. Clearly the market is looking 18-24 months ahead and sees darker clouds on teh horizon than the companies in the segment. GFRD has the added benefits of the strength of its earnings in partnership Housing and Construction but has still been smashed. Our inclination is that GFRD at 7.2x p/e for the year to end June 2016 is cheap.
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