Market Commentary - Housing, Infrastructure, Construction and Services 9th March 2017
There is no directly relevant news from companies this morning. The Budget yesterday made few changes that will affect the industry other than the change in NICs which is bad news for the sector, which has a high level of self-employment.
There is no directly relevant news from companies this morning. The new Chair at Interserve bought £60,000 worth of stock which is noted but such moves make little difference when done by NEDs, the sum is around 30% of his annual fee. The CEO at Speedy bought £70,000 worth of Speedy stock ahead of it going into close period as well and that is more significant, in our view as the CEO dipping his/her hand into the pocket is meaningful.
The Budget yesterday made few changes that will affect the industry other than the change in NICs which is bad news for the sector, which has a high level of self-employment. How that proposed change will work out has yet to be seen. Short note today as we are offsite.
It’s been a week of wild moves and the 8% rise in G4S to 289p, the biggest riser yesterday was another. A FTSE 100 stock that is widely covered and comes out with good results (signalled already) and a statement of intent about the future that could be seen coming a mile off should not rise that much. It’s now 20% up YTD. The herd mentality among analysts does not aid independent thinking on G4S and several other stocks that have risen (mainly) and fallen substantially in the current results period. Communication in the market is supposed to be such that big shocks are avoided; the system of company signalling and analyst research is supposed to reduce “shocks”. More independent research is needed, not tied to banks. The level of questioning at meetings is low, in our view.
We went along to the G4S meeting and the tone was positive on future growth in revenue and earnings, the balance sheet improvement and competitive positioning. The company pointed to growth of revenue of 5-6% a year and improving margins which is realistic, as we have been saying. There was particular focus on cash management in for large customers, an area in which G4S has built a lead that rivals are struggling to replicate. But in the mainstream manned guarding operations there have also been improvement led by technology and improved working practices. There were stories too of areas where improvement is needed and changes are being made. The US provided the biggest fillip to the numbers last year but the largest spend in its addressable market is in Asia Pacific. The message yesterday from the top was that since mid-2013 the company has been rebooting itself and that phase is now over. At 289p and with EPS at c 18p G4S is no longer very cheap but it is cheap.
Bad boy Berendsen was the backmarker yesterday, down 2.7% at 775p. The bold plan for a complete overhaul of the business somehow does not quite ring true given the performance prior to a seasonal glitch last summer. If it is needed there are a lot of moving parts in the plan, certainly plenty enough to confuse the situation. £450m investment over the next three years is a big bet for a company that has issued two profit warnings in the last six months and operates in mature markets that have structural change (Rentokil/Haniel). The City would be more reassured, we suspect, with greater focus on a few key issues rather than the current root and branch reform of a business that was regarded as pretty well run.
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