Market Commentary - Housing, Infrastructure, Construction and Services 28th October 2016
There is little new news this morning in the sector. No prize for guessing that Berendsen was the largest faller yesterday. Galliford Try deserves a mention as it fell 3.9% yesterday to 1211p at close and is 10% lower last night than at the end of the session on Monday.
There is little new news this morning in the sector. The only piece of relevant new data is the sale by Entu of a business for £1 (that is 100p) of a subsidiary called Astley Facades that up the point of disposal produced EBITDA of £1.1m. The financial rationale for the sale is therefore hard to understand as it takes excepted group EBITDA from £3.6-£4.0m this year down to £2.5-£2.9m. Given that the year end is Monday next the range of outcomes is wide. The rationale is said to be that the facade business is relatively low margin and always Tier 2 work at best. The Astley operations were bought by Entu in March last year for £0.2m. So the process is all rather odd. We can appreciate why a small facade operation based in Wigan might have lumpy earnings, as projects are variable in timing and size and the funding (via CERT,CESP and ECO) of new facades, for existing properties, has fallen but this about face in 18 months is odd. The read across is that operating in areas that are dependent for funding on UK government legislation, especially in energy, is best given a wide berth. The statement provides no clues as to where this leave Entu regarding dividend payments for the year about to end though the disposal is of teh sahre capital so at least investors can be confident, barring any warranties of which we are not aware, that there is no legacy issue.
No prize for guessing that Berendsen was the largest faller yesterday, closing down 16.3% at 1030.5p, the lowest level since December 2015. We said enough yesterday about the long road back to gain investors confidence and achieving a premium rating. Stuff happens in any business and the company is unfortunate that a few things coincided. Having said that the impact on earnings seems disproportionate to the events and the company is less than transparent regarding the splits between FX, M&A and operational issues. It also likely that a few things turned out better than expected but they are not mentioned as stuff happens both ways.
Galliford Try deserves a mention as it fell 3.9% yesterday to 1211p at close and is 10% lower last night than at the end of the session on Monday. The move is unusually large, despite it being a tough week so far for all of the housebuilders. It indicates either a very determined seller or a distinct lack of buyers, or both. The stock had fallen by less than many others dependent on house-building for earnings, YTD (it was 10% down to Monday, rather than 20%+ of sector leaders and it now down 20% YTD) so this may be some catch up. We doubt that there is anything more sinister at the business and it may just be teething pains with a new CEO, that has made quite a few senior management changes, as indicated by him at the last results meeting. The consensus is still for around 150p of EPS this year so the prospective EPS at 8.0x looks harsh
The best riser yesterday was Homeserve but as it was just 0.6% and was one of just six stocks that recorded small rises we shall not dwell on it. The general message is that buyers are scarce right now and stocks are not being chased. There is no real need to chase prices from what we can see. But we shall reiterate the point made a few days ago, Balfour Beatty is past the danger point in its Construction operations, the legacy projects are not gone but the really harmful stage is history and its PPP/PFI portfolio is undervalued, when compared with its peers.
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