Market Commentary - Housing, Infrastructure, Construction and Services 7th October 2016
The HICS sector fell 0.5% yesterday, roughly in line with the market. The only news today is that HSS Hire is taking some analysts on a site visit to its distribution centre in Oxford. Capita’s lack of any friends continues with the stock falling another 3.6% to 632p, the largest faller in our universe. Mitie is now trading at 10% higher than its post profit warning low. It is possible there could good news on a large multi site FM contract soon at Mitie which will aid confidence as the business is not as bad as a share price of 170p reflects but not as good as the earlier 300p level indicated.
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Market Commentary - Housing, Infrastructure, Construction and Services
Friday, 07 October 2016
The only news today is that HSS Hire is taking some analysts on a site visit to its distribution centre in Oxford. We are not attending. No new material will be presented. HSS probably needs to present new material as the share price is stuck at 70-80p now and has been much lower since floating at 210p in February last year. The financial and commercial strategies were flawed. The net debt to equity remains at or near levels more common with PE structures than quoted entities. And the commercial strategy to expand rapidly has been abandoned but not properly replaced. The only time the price rose above 80p was when the market swirled with rumours of a combination with Speedy. It is perfectly understandable that Tosca can believe that Speedy and HSS combined will provide greater market power (buying and selling) and lower overheads but there are many other factors which suggest to us that combination would be 2+2=3. Speedy has much better options to grow and get improved overhead absorption and commercial clout. HSS may be a disrupter but it’s no Lidl or Aldi and has a lot of mid-term commitments to branches in the network that are hard to justify on current and expected future trading
The HICS sector fell 0.5% yesterday, roughly in line with the market. Grafton was the best performer yesterday rising 0.7% to 506p on 1.9m shares traded and Wolseley was not far behind with a 0.4% rise. WOS is now higher than it was before the recent results. That has surprised us though sterling’s decline alone will account for some if not all of that of the shift. The logic of much of the argument at the results meeting was that WOS should exit its European operations, which have never been top performers and focus almost entirely on the US and Canada, especially the Ferguson operations in the US which is the market leader. Instead of course WOS management explained that it would improve its Euroland operation, in few simple slides but without much detail regarding how and with a less than full explanation of what the differentiation it was boasting of actually meant. Differentiation means Differentiation. The price closed at near 4500p last night, 17x prospective earnings for the current year.
Capita’s lack of any friends continues with the stock falling another 3.6% to 632p, the largest faller in our universe. Nobody wants to catch that falling knife as yet. Brokers across London are slashing the target price to half of the previous levels, based on facts that were already well known and the company saying only that PBT will be around 12% lower this year than previous expectations! Better sense will prevail soon we suspect. Both in terms of the company providing more realistic guidance and Big Bank brokers being less erratic (and very late) in their assessments. Mitie is now trading at 10% higher than its post profit warning low. It is possible there could good news on a large multi site FM contract soon at Mitie which will aid confidence as the business is not as bad as a share price of 170p reflects but not as good as the earlier 300p level indicated. Capita may also find a few contract wins that will help confidence restart, like Mitie, though in its case it is hard to see how that will happen without a few changes in people and strategy.
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