Market Commentary - Housing, Infrastructure, Construction and Services 20th April 2017
It’s all pretty quiet this morning with no company news to report. Balfour Beatty, Tyman and Barratt Developments trade XD today with the first two having final dividends at 1.8p and 7.5p respectively and the interim pay out from BDEV at 7.5p. SIG was the best performer yesterday rising 3.0% to 116.9p, its highest close since October last year.
It’s all pretty quiet this morning with no company news to report. Balfour Beatty, Tyman and Barratt Developments trade XD today with the first two having final dividends at 1.8p and 7.5p respectively and the interim pay out from BDEV at 7.5p.
SIG was the best performer yesterday rising 3.0% to 116.9p, its highest close since October last year. It is now up 15% YTD and the new CEO has not even started yet! The share price improvement reflects the latent/intrinsic value in the operations, we believe which the previous top team was not able to realise. Taking the current revenue of around £2.8bn, with 5% margins, £15m of interest payments and a 25% blended tax rate EPS of 15p+ is likely. Foremost among a number of recent issues was the failure to get the core operations in the best possible shape and get the margin for the value added it provided in distribution. Distribution is not simply another form of retailing and in SIG’s case it is quite different. If our quick maths is correct 116.9p is still the wrong price at p/e of at least 10x is justified. We expect that an equity issue is not needed and there have been several write-offs of past errors, which we believe contain the worst of the “bad stuff”. It’s not all plain sailing from here but there is enough to indicate that getting the core in better shape, which has started and by exploiting new areas, such as Insulshell/components for modular construction and air handling equipment, SIG’s pace of improvement could be quite rapid.
Grafton up 2.8% and Travis Perkins, up 2.7% were the other main risers yesterday. There may be a drift away from Wolseley, which is at its lowest level, 4781p, since early December last year as it drifts towards becoming a US domiciled entity. It may also be that the market has realised that the subsector with large UK exposure was a tad oversold. In the case of WOS its seems to have difficulties in all territories at present, apart from the US.
The back markers at close of play in yesterday’s session were Rentokil, down 1.4% to 244p and Compass down 1.7% at 1494p. FX changes, specifically £ strength versus the US$ will take some of the gloss from earnings improvements at both companies so a bit of selling pressure should be expected. The markets for both companies are unchanged but adjustment to FX was and remains inevitable.
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