Market Commentary - Housing, Infrastructure, Construction and Services 5th May 2017
T Clarke, the small building services operation, has its AGM today and has issued a short update. The good news from Morgan Sindall and G4S in trading updates yesterday brought instant improvement in the share prices. Carillion fell again yesterday, by 2.6% to 211p. It has suffered from read across following Galliford’s views on the out-turn on the Aberdeen roads project (Galliford Try/Carillion/Balfour Beatty JV.
T Clarke, the small building services operation, has its AGM today and has issued a short update. The company is confident and, due to the order book rising to over £400m (£402m at end April, up 22% from the start of the year), management now believes that it will beat current market expectations for 2017 of £300m revenue, £6.1m PBT and 11.3p of EPS (adjusted PBT last year was reported at £6.2m and adjusted EPS was 11.6p). So it may be that the adjusted earnings out-turn this year could match the achievement of last year on revenue indicated to be around 10% higher than last year’s £278m. The company mentions a number of construction projects and long term maintenance programmes on which it has been successful in securing contracts in recent months.
So it’s all looking better at CTO we are told but there is no mention of the cash flow, the recent fraud or the £20.6m pension shortfall on just £32.7m of assets. The company signs off with a commitment to target opportunities that further improve margins but given relatively stable PBT this year versus last and much higher revenue, it’s not clear how margin improvement is coming through. The read across in terms of market demand is very positive but the company’s approach to presenting its position fairly and reasonably is unique.
The good news from Morgan Sindall and G4S in trading updates yesterday brought instant improvement in the share prices with the former up 4.1% to 1089p and the latter up 3.5% to 325p. Regular readers will know that we see many good signs of progress in both companies and there is no reason to change view, even at current valuations. In both cases increased revenue and improved margins are likely and clearly net debt is improving. There is no talk at either company about acquisitions, though we suspect G4S may make some bolt-ons, leaving cash for organic development and the shareholders.
Carillion fell again yesterday, by 2.6% to 211p. It has suffered from read across following Galliford’s views on the out-turn on the Aberdeen roads project (Galliford Try/Carillion/Balfour Beatty JV). We have talked to all three companies in recent days. While Galliford has taken its view the others are less concerned. The project mobilisation was not smooth and there have been periods of bad weather that have hindered progress. But the project is far from completed and there is still much to discuss with the customer and the usual counter claims with the customer will exist. There is not enough data in the public domain for outsiders to take a view. What we do know is that all three companies are aware of the rules of engagement in the quoted arena and have different areas of expertise and other commercial considerations to look at when forming a view of the likely out-turn. At 211p and with a 10% + yield over the next 12 months (the shares go XD next week) there is some protection with CLLN and we expect to see the balance sheet improve significantly over the next 2/3 years which will reduce the pessimism around the share price.
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