Market Commentary - Housing, Infrastructure, Construction and Services 13th October 2016
Only Ashtead supplies the sector with news today and it’s reassuringly dull. The company is holding an event for analysts and investors this afternoon. CMDs can have mixed outcomes. HSS held one last week, 7th October and the price has drifted downwards since that gathering from 74p, closing last night at 70p. Mitie and Capita were always likely to bounce at some point and yesterday was that day. The largest decline yesterday was at Polypipe, which fell by 3.3% to 271p. The company is due to update soon. There must be some nervousness about the costs of its main raw material input costs which are determined in $.
Only Ashtead supplies the sector with news today and it’s reassuringly dull. The company is holding an event for analysts and investors this afternoon and has released the usual statement about the event and added that first half trading will be in line with expectations. The main presentations today will be about the US operations and the plan to increase the footprint by 50% over the next five years. The read-across to UK based hire companies is neutral, the new information does not alter views at this stage but the sustained demand level implied by the update is good news.
CMDs can have mixed outcomes. HSS held one last week, 7th October and the price has drifted downwards since that gathering from 74p, closing last night at 70p. The meeting explained the workings of the National Distribution Centre, which was not new and does not offer a change of expectations. Ashtead by contrast appears to be indicating that it will show how it can sustain the growth achieved over the last five years during the next five. The share price has rebounded strongly in recent weeks but of course benefits from $ earnings. We are not attending the Ashtead meeting, we have an alternative event to attend on which we shall report tomorrow but we shall look at the Ashtead data tonight for news and clues to guide investment decisions.
Mitie and Capita were always likely to bounce at some point and yesterday was that day. Mitie of course has already seen some retracement from the 180p floor and it closed at 206p yesterday, up 3.2% on the day and is 14% higher than it was on the day following the profit warning. Industry information is that there are some contract wins not yet announced. The telling factor will be whether Ruby keeps or sells her shares after formal departure on 12th December. There are of course a lot of “events” to take place between now and then which might influence the price and any decision. The bounce in Capita’s shares, up 1.3% to 591p might also be something a little better than a “Dead Cat” one and its ability to retain contracts should be greater than Mitie’s so earning will be more sticky just not as high as previously claimed. Mitie’s retrace may have run its course for now, it is trading on 10.5x p/e for this year which is up with events but Capita’s could have further to go, especially as panic over the possibility of an equity issue recedes a little; that may happen but not soon as other changes may be needed first.
The largest decline yesterday was at Polypipe which fell by 3.3% to 271p. The company is due to update soon. There must be some nervousness about the costs of its main raw material input costs which are determined in $. Historically these have been a minor issue as the whole industry adjusts thereby levelling out the changes for all but the moves have been so rapid there may have been some difficulties this time around. Also the company does hedge some purchases to provide a “buffer” so the impact may not be as tough as the recent price moves might reflect. What is clear though is that the possibility of upside to forecast is not favourite and the update is likely to be cautious in tone. It may be that the market needs a reminder of the moving arts in its COGs. Trading on 11x is low for Polypipe so a positive statement is need to restore confidence and get the stock out of the danger zone level of dropping out of the FTSE250. It is a very good company and its newer products are less dependent on materials as a proportion of selling price but the market’s understanding of a company takes a long time to alter.
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