Market Commentary - Housing, Infrastructure, Construction and Services - 11th November 2016
Galliford Try and SIG have statements for us this morning. Galliford Try has its AGM today and in a short release this morning the management tell us so but add nothing about trading YTD since 1st July. SIG has more substantial news with its update, a profit warning, which shows sales down 0.8% L4L in the last four months and its CEO will leave (by mutual consent) to be replaced, on an interim basis, by Mel Ewell who left Amey as its CEO at the turn of the year.
Galliford Try and SIG have statements for us this morning. Galliford Try has its AGM today and in a short release this morning the management tell us so but add nothing about trading YTD since 1st July. We have normally had some data and comment so this is a change. Arguably the absence of comment signifies that trading is as expected, otherwise the management would have said something. We think that is the soundest conclusion to draw.
SIG has more substantial news with its update, a profit warning, which shows sales down 0.8% L4L in the last four months and its CEO will leave (by mutual consent) to be replaced, on an interim basis, by Mel Ewell who left Amey as its CEO at the turn of the year. SIG has struggled under Stuart, who had a background in retailing, which was not necessarily 100% suited to SIG’s products and services, which require a high level of specification and interaction in many cases with Architects and specifiers. He might have expected more help from the markets in the UK and in Euroland but it has been a difficult time in construction and regarding legislation that affects insulation sales. His interim replacement comes from Amey which is going through more than a few troubles of its own at present. The search for a permanent successor is underway. The news of the CEO departure comes just three weeks after a new CFO was appointed (Neil Maddock from McCarthy and Stone) suggesting a less than orderly succession process, which is unfortunate.
The trading picture at SIG is worse than previously expected due to a mix of market and company issues. UK trading has been affected by project delays and intensified competition in the market. Sales were down 1.1% in teh four months to end October and up 0.8% YTD. Euroland market progress is variable and sales are down 0.5% L4L in the four months to end October, 1.0% YTD. In terms of internal issues the expansion into offsite is held back by new equipment commissioning delays and the cost reduction initiatives have not had a full impact on earnings due to the competitive market situation. So SIG will deliver underlying PBT of £75-80m this year which is below previous guidance of c £95m. The company is accelerating its strategic initiatives to reduce costs which will cost a £10m further exceptional this year. Exceptional costs to get to the expected adjusted PBT have been a feature of SIG’s numbers for nearly 10 years, preceeding Stuart Mitchell’s time as CEO and so are nothing new. The plot will thicken as the next few weeks unfold regarding the likelihood of corporate actions regarding SIG, we suspect. Conference call at 8am. Clearly the stock will be severely hit this morning, even though SIGG’s weakness was known but that may give way to a more generous appraisal as the business has some key strengths and its suppliers cannot replace its role in the value chain swiftly or easily. The new guidance implies EPS of around 9p for this year, though FX tailwinds provide some offset for Euroland earnings. Sio a share price of c 80p at open is possible
The moves yesterday took place in a market confused already by the messages of Brexit and now further complicated by the Trump campaign’s success. Interserve was the best mover rising 6.4% to 363.7p as confidence increases that additional funding might not be necessary and ahead of a mid November trading update. It’s not rocket scince to see that if it hits teh market guidance of adjusted EPS of 60-65p the shares are cheap but the concern is about whether the Glasgow Waste to Energy project will cost more than £70m and whether the dividend is intact. We suspect that latter is not in jeopardy at around 24-25p but cash facilities will be stretched.
The main upwards moves came in Atkins, up 6.3% to 1714p and Balfour Beatty up 5.0% to 295p, its highest level since April 2014. Of course both responded to the Trump Infrastructure expansion promises which have some firm but as yet no substance. In our view both stocks can easily justify the new valuations on current forecast and expectations without a Big Trump Bang.
Compass and Rentokil were the back markers yesterday, down 4.5% and 3.2% respectively as the market readjusted to a slightly weaker $ and attention was on other sectors. Both stocks were priced for perfection so perhaps this is just a slight adjustment but the long term picture for both is unchanged and positive.
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