Market Commentary - Housing, Infrastructure, Construction and Services 28th April 2017
Following a plethora of news yesterday, today is relatively quiet with just SNC-Lavalin’s announcement that it has raised C$1.3bn of the required C$3.6bn needed to buy Atkins, slightly more (C$80m) that was expected from the public subscription and CDPQ placing. Berendsen’s update was popular with investors and the stock rose 5.8% to 869p, its highest level since early March this year when the second warning triggered a sell off.
Following a plethora of news yesterday, today is relatively quiet with just SNC-Lavalin’s announcement that it has raised C$1.3bn of the required C$3.6bn needed to buy Atkins, slightly more (C$80m) that was expected from the public subscription and CDPQ placing. Including the pension deficit the deal is worth C$4.2bn but the cash needed is lower. So with funding in place it seems that the only potential glitches might be from regulatory sources and from contracts that need to be novated. We expect that neither will be an issue but time will be needed to reassure some of the major customers. Useful therefore to have Heath Drewett remain as the new CEO. So all the milestones for the deal to complete in the Autumn are being passed and Atkins will soon be part of a larger entity.
Berendsen’s update was popular with investors and the stock rose 5.8% to 869p, its highest level since early March this year when the second warning triggered a sell off. The release yesterday was short and played down the extensive measures being taken to improve performance and focused on the intended outcome, better margins. So even though sales are down in the UK, as expected, investors gained more confidence from hearing less! Or perhaps it was just that the update was reassuring and showed that there is no systemic issue at the company, either internally or with its markets. EPS of 58p this year and a share price at 869p is a prospective p/e of 15x which is still below the valuation of several peers but may be up with events until the half year numbers are released. There were few other upward moves yesterday and all were by less than 1% as sentiment turned a little negative on the HICS sector.
The backmarker yesterday was Morgan Sindall which fell 3.9%, 34p, to 1060p. There were only 20,530 shares traded and the stock went XD with the 22p final dividend from last year so it was really a 0-0 draw with the market. Other stocks that went XD yesterday were Polypipe, 7p final and G4S 538p final, both of which fell a little, just over 1p, so not as much as the dividend which is a result on a dull day.
We spent quite a bit of time yesterday with organisations discussing the effects on equity research arising from the implementation of MiFiD and, with a different group, ways of corporates handling pension deficits without handing over large chunks of cash the shareholders will never see again.
MiFiD II is happening, starting later this year and the preparations at many financial sector organisations are well in hand, including the main information providers. But our sense is that many corporate have yet to work out how they will handle the inevitable substantial loss of research capacity as broker lists are halved and funds allocation to research much reduced. The impact might be very substantial. Get in touch if this is of interest and we can provide more background.
Companies that have a large pension deficit and are paying big amounts of cash each year into a pension fund seeking 3% pa returns which might remain in the company and earn 15-20% pa now have a viable alternative that will mitigate some of the cash allocation burden. Get in touch if this is of interest and we can talk you through it.
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