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30 March 2017 · 2 min read

Market Commentary - Housing, Infrastructure, Construction and Services 30th March 2017

Polypipe has had a strong start to the year, the shares are up 9.2% YTD at 353p and the 2016 numbers announced this morning indicate a large part of the reason for that support. Balfour Beatty was the best mover yesterday rising 1.7% to 269.3p.  Berendsen, who loves ya? Nobody at present, it would seem, as the price has drifted downwards to 740p at close yesterday, the lowest level since March 2013.

Polypipe has had a strong start to the year, the shares are up 9.2% YTD at 353p and the 2016 numbers announced this morning indicate a large part of the reason for that support. The share price is up 60% on the July 2016 low point. The numbers today show revenue up 24% to £437m (9% on an L4L basis) and the underlying operating profit is up 28% at £69m. Underlying EPS rose last year by 29% to 25.0p which is a little ahead of expectations and the dividend was also raised by the same percentage to 10.1p for the year. Net debt was down £30m at £164m which is the only element of concern that outsiders might have as it remains high at 1.9x trailing EBITDA. But with cash conversion from operating profit at 97% last year, a positive outlook and the borrowings are at a low coupon this aspect is not a constraint. The company expects to increase capital expenditure in 2017 by 30%, some of which is catch up on projects delayed last year in the post Referendum hiatus. More below

Balfour Beatty was the best mover yesterday rising 1.7% to 269.3p. (Question to Editor, when did we last write that?) The post results dip was not justified on fundamentals; in our view so the floor at 263p is well supported, we believe and 300p is probably the most “sensible” mid-term target price at present. Carillion also regained most of the dip in the price that followed negative broker comment made two days ago; it rose 0.9% to 217p. Atkins saw some support rising 0.9% to 1488p, which is roughly the level it was at prior to the news that it might be a bid target. It is slowly creeping upwards but the share price, unlike the company, is not firing on all cylinders at the moment and that is the opportunity.

Berendsen, who loves ya? Nobody at present, it would seem, as the price has drifted downwards to 740p at close yesterday, the lowest level since March 2013. It’s not going to plan for new CEO James Drummond and it’s pretty clear why, at least to us. All the management effort is on a massive number of operational developments that are too confusing for Joe Average and, at the same time, the strategic picture in main its markets is changing. Limited attention seems to be paid to that in public statements. Mmmm. 2.7m Berendsen shares were traded yesterday, which is not a lot but still quite representative of present sentiment. Optically the stock looks very cheap as consensus forecast are at 63p of EPS this year and there are no balance sheet and pension issues to be concerned about. It looks primed for share price recovery but credibility is currently in short supply.

Polypipe has had a very successful return to the quoted arena. Some of the recent focus has been on the problems but Polypipe, Forterra and Ibstock have all matched or done better than expectations since returning to the market. The attractions of PLP when it came back were its well invested plant, strong market positions and growth prospects. Since its return it has consolidated its UK position, expanded the product range and thereby become slightly less dependent on residential and RMI spend and is now investing in the UK and the Middle East for growth. The deal to buy Nuaire, a specialist in Heating and Ventilation mechanisms has proven to be very sound. The deal was done with all debt, hence the high net debt position but in effect the transactions will more than pay for itself and in the meantime investors are getting a positive return. The short term issue is making sure that cost increases incurred principally as a result of FX changes are passed on to customers. So far the experience has been positive and trading 2017 YTD is said to have started well. Some of the recovery will not take place until Q2 and the company indicate that the earnings profile this year may be slightly different than in prior years as a consequence. More data will be available at the meeting at 8.30, we suspect. The main competitor are also affected by cost increases so there is good reason to believe that it’s a market issue and not specific to PLP and the cost of PLP’s products within the projects on which it operates is small. We suspect forecasts will rise a little today but not much given the level of uncertainty ahead on a number of fronts; EPS in 2017 of 27-28p is the likely level.

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