Stephen Rawlinson
21 April 2017 · 1 min read

Market Commentary - Housing, Infrastructure, Construction and Services 21st April 2017

The main (and only substantial) item this morning is that the Atkins board has agreed to accept 2080p a share and is recommending it to shareholders, the T&Cs having been settled. The week has been quiet for most companies and sector observers and there are few planned announcement for next week. Rentokil did announce today that it has won the Queen’s Award for Enterprise for International Trade in its Pest Control division but we figured that would not move the dial much on the share price; there is much other good stuff in the company that will, as we have stated.

The main (and only substantial) item this morning is that the Atkins board has agreed to accept 2080p a share and is recommending it to shareholders, the T&Cs having been settled. Montreal based SNC-Lavalin are likely to be the new owners and the process will conclude in Autumn of this year. The total consideration is £2.1bn plus the pension deficit/net post-employment liability of £424m. There is no doubt that SNC-Lavalin are buying a good business in which most of the heavy lifting to get to 8% margins has been done and which is operating in favourable markets. Equally there is no doubt that the consideration is ahead of where the Atkins share price might get to on 2/3 year view and the pension deficit is rising, creating a buying deterrent for some UK Institutions. SNC-Lavalin has recognised over £100m of cost synergies to be achieved in the first full year by combining the entities which help to justify the deal. Heath Drewett will remain with the combined entity and be promoted to “lead Atkins” and Uwe Kreuger will depart on completion.

Clearly the deal is subject to regulatory consents but aside from that our quick read of the documents suggests no reason for it not to go ahead and the price, we believe is full, taking into account the prospects, the pension deficit cash of £35m a year, payable until 2025 and £174m of EBITDA last year. The pension trustees might want greater assurances than shareholders and could still have their say and that may unfold; arguably the combined entity provides them with a better covenant and SNC-Lavalin appear to have recognised the potential issues. The Directors have given their irrevocable comprising 0.14% of the total shares so there is some way to go to get to the required 75% but few barriers. It will be interesting to see how the £2.1bn of SNC-Lavalin’s cash is re-cycled, which will be mainly into the UK market. There is no real quoted equivalent to Atkins and in terms of sector and geographic exposure Balfour Beatty is probably the closest.

Polypipe was the leader yesterday, up 1.7% to 402.7p, the first time it has closed at over 400p. 27p of EPS this year and 29p next are the current forecasts and a few bits of new data are helping the risks towards being up not down. There was not much movement at all yesterday, as we saw for much of the week. PLP was one of only two stocks that rose by more than 1%, the other being Homeserve which closed at 658p. Few stocks fell, with only five dropping by more than 1%, in a range from 1.0% (Travis Perkins) to 1.3% (Interserve). So nothing much at all to indicate future moves but the solid support for SIG (up 0.6% to 117.6p) is interesting and the graph on G4S, up 0.5% to 307p suggests that it has found a range of 290-310p at the moment.

The week has been quiet for most companies and sector observers and there are few planned announcement for next week. Rentokil did announce today that it has won the Queen’s Award for Enterprise for International Trade in its Pest Control division but we figured that would not move the dial much on the share price; there is much other good stuff in the company that will, as we have stated.

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.

Tags