Stephen Rawlinson
23 June 2017 · 2 min read

Market Commentary - Housing, Infrastructure, Construction and Services 23rd June 2017

Workspace has the floor to itself this morning with its £159m acquisition of Salisbury House in Finsbury Circus. Moves yesterday were in a tight range with Grafton leading the way rising just 1% to 733.0p and Balfour Beatty suffering a little, along with other contractors, down 1.6% to 277.8p.

Workspace has the floor to itself this morning with its £159m acquisition of Salisbury House in Finsbury Circus. This is a much bigger than average deal for the company. It is interesting for the sector as it is a pretty bold statement by a very experienced organisation. It has been bought with an initial yield of 5% based on a rent at present of £41.50p per sq ft and 90% occupancy. There is therefore some scope to upgrade the space and charge a much higher rental, in a very good location. We look at it for read across and there are few signs of Brexit nerves shown with this deal. Also it has positive read across, albeit that it’s just one building, for fit-out specialists such as Morgan Sindall, which is already faced with unprecedented high levels of orders.

Moves yesterday were in a tight range with Grafton leading the way rising just 1% to 733.0p and Balfour Beatty suffering a little, along with other contractors, down 1.6% to 277.8p. This is telling us that investors are wary of both buying and selling at present, save on specific company news, good or bad. The reporting for December and June year ends starts in August but we will see some pre close updates in the next two weeks. If there are surprises we believe they are likely to come from Balfour Beatty, which has been modest in claiming progress to date but may have some better than expected news and Serco. The latter provided a reality check at the 2016 full year results in late February but has since won the £1.5bn detention centre project in Australia and may have made progress with its OCPs and the other “elephant” projects.

SIG was well ahead in early moves yesterday though it retraced towards the end of the day, rising just 0.8% by close of play, having been up over 4% at one point in the trading session. A broker’s note was published yesterday, switching the recommendation from hold to buy with a TP of 170p and that boosted interest. We became very positive on the stock at 93p late last year. This broker’s recommendation was hold from 90p to 145p and has now become buy with just 17% upside. Work that one out! In fact we expect 200p+ to be achievable for SIG based on EPS of 15p and a 14x p/e ratio. We also expect its insulation consultancy services to be in greater demand henceforth, which have an above average margin. Its new commercial approaches and better accommodations with suppliers make improved earnings realistic, hence the move already to 145p.

Finally, many thanks to everyone who contributed to the Royal Marsden Charity Golf Day we were involved with that took place on Friday last. At both individual and company level you have been very generous. We are still getting money coming in and there is still time! The tally at present is over £7,500. https://www.justgiving.com/fundraising/CoombeWoodGolfCharity

 

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