Stephen Rawlinson
12 May 2017 · 2 min read

Market Commentary - Housing, Infrastructure, Construction and Services 12th May 2017

Interserve and Tyman both have an AGM later today and have issued update this morning covering the year to date. Interserve’s news is very much a holding statement as the new CEO is not due to arrive from Sodexo until September. Tyman’s news is that all is as expected in the mainstream with some ups and a few downs balancing each other.

Interserve and Tyman both have an AGM later today and have issued update this morning covering the year to date. In both cases trading is in line with expectations however both point out that trading is 2H weighted, more so than in previous year at Interserve. The political uncertainties have not slowed government work for IRV, we are told but, we and they, suspect the election purdah might have an effect in the coming weeks.

Interserve’s news is very much a holding statement as the new CEO is not due to arrive from Sodexo until September. It’s a tough task for the current top team. Remarks about the UK services and construction segments being robust and mixed respectively are designed to just hold what exists, playing for a 0-0 draw which, realistically, is all the current team can achieve at present. The most positive remarks about trading are in the Equipment services area, for which an acceptable offer was not obtained last year; the business is said to have good momentum in demand and to be benefitting from management actions. The company mentions some selected contract wins in each division of the business in the release. Importantly also the £170m exceptional charge for the waste to energy operation seems to date to be big enough, which will be seen as positive by investors. Adjusted EPS of 58p is still the expectation for this year’s out-turn but the net debt position is uncomfortable and the company passed on the full year dividend (having paid 8.1 at the interim stage) reducing the attraction of holding the stock. Interserve has some good contracts but at present is clearly in an unsettled position and will remain so until later this year. It’s hard therefore to determine value and the risk/reward.

Tyman’s news is that all is as expected in the mainstream with some ups and a few downs balancing each other. Revenue is 31% higher than last year in reported terms, the rise being due to FX and acquisitions as revenue overall is level with last year at CER and like for like. The text however suggests that trading might be a bit better than level as Amesbury Truth, the North American operation, is said to have had an encouraging start to the year, ERA, the UK business is said to have revenue ahead of last year and Schlegel has had an encouraging performance. There are few areas on sluggish sales performance (Latin America and Middle East) but in the main areas of operation the words used are upbeat. The UK operations are of course adjusting to higher input costs due to FX and that remark is extended to all operations; these are being managed though cast reduction programmes and efficient procurement. The market is expecting 28p of EPS this year so with the price at 348p last night the valuation is not stretching alongside its peers, in our view.

The HICs sector continues to be in the doldrums as the main news flow that affects it is broadly positive but investors and companies are cautious about what lies ahead. Carillion, as might be expected was the worst performer yesterday falling 6.8% to 207p as it went XD with a 12.65p final dividend payment. The 14.4p fall in the price was a tad greater than the dividend payment of course but not by so much that it changes views on the stock. For investors who believe it can trade through its balance sheet issues the price is very cheap. Polypipe was the best performer as it rose 1.1% to close at 406p. It has performed very well since the results announcement. On fundamentals it should be able to sustain its price at around 400p in the current trading climate. SIG also rose well yesterday (1% to close at 125.2p) after the AGM update and today it is holding a lunch time “meet the top team” session.

 

 

Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.