Market Commentary - Housing, Infrastructure, Construction and Services 25th May 2017
Updates from two small sector companies, Van Elle the piling contractor and Henry Boot the developer and contractor, point to market conditions remaining positive. Van Elle’s update is to its year end 30th April. It came out with a small warning on 22 March due to workflow timing in Network Rail but that has not changed further and the year has started well with new work arising in all division. Henry Boot has told us quite early in the year that it expects to exceed previous market expectations for the current year, especially as by its own admission it is a transactions led business and timings are not always in its control.
Updates from two small sector companies, Van Elle the piling contractor and Henry Boot the developer and contractor, point to market conditions remaining positive. Van Elle’s update is to its year end 30th April. It came out with a small warning on 22 March due to workflow timing in Network Rail but that has not changed further and the year has started well with new work arising in all divisions. Revenue last year will be around £93m according to the company and market EPS forecasts fall just short of 10p a share, so the valuation at the closing price of 98p last night does not look stretching and the net debt of £4.1m at the end of the half year is not a drag on valuation. The company floated in late October last year placing 40m shares at 100p each. The warning and some board changes have not aided sentiment but the business has restored some of its composure and its markets remain positive, albeit that given the size of the company delays in key contracts can sometimes have a meaningful impact on results. Revenue in the year just ended are likely to be at least 10% higher than the £84m obtained last year and adjusted operating margins slightly lower than the 13% obtained last year due to the delays in certain contracts.
Henry Boot has told us quite early in the year that it expects to exceed previous market expectations for the current year, especially as by its own admission it is a transactions led business and timings are not always in its control. The company reports that the uncertainty created by the election is having no impact. The business operates in three main areas, Land promotion, Property investment and development and Construction. In all three areas the companies cite several projects that are performing well. YTD the land promotion business has concluded the sale of 900 units on seven sites and permission has been obtained on a further 1,965 sites giving a total of 17,600 sites currently available. In Property and Housebuilding the developments at Markham Vale, Manchester City Centre and Terry’s Chocolate factory are said to be progress well. In construction there is no evidence of as shortage of sensible projects and the order book for 2018 is being increased. Henry Boot operates outside the South East so it may be enjoying better market conditions than other parts of the country that are more dependent on activities in financial services. EPS of 23p was the expected level for this year before the update and the shares closed last night at 280p.
Yesterday we saw SIG have another strong performance, up 50% YTD and 4.4% during the session, to close at 151.4p. There is no new news so the rise is a mystery to some but we suspect that the market is waking up to the potential that exists to improve and crystallise shareholder value. The news from Polypipe that it is trading well in Euroland helped, we suspect. The rise has been solid since new CEO Meinie Oldersma started to get involved with investors, supported by FD Nick Maddock. There is sometimes retracement when strong buying drives a price so swiftly on no real new data. The stock goes XD on 8th June. But the longer term prospects remain positive so do not be deceived by short term profit taking and the dividend impact. Polypipe saw a positive reaction to the update and the changes on the board to close up 2.5% at 437p and was the second best performer.
Homeserve’s charge upwards on Tuesday saw some 40% of the gain reversed yesterday as it was the largest faller, down 4.4% to 743p. The valuation is stretched, in our view.
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