Market Commentary - Housing, Infrastructure, Construction and Services 9th May 2017
It’s all going to plan at Grafton, if we have understood correctly the update released this morning to coincide with the AGM later today. Mitie has announced a new non exec Chairman today, Derek Mapp, who joins the company after having similar roles elsewhere. The sector moves yesterday, as in the market as a whole, provided limited sense of direction.
It’s all going to plan at Grafton, if we have understood correctly the update released this morning to coincide with the AGM later today. Trading in the first four months of the year was positive with revenue up 6.1% L4L and at CER; actual revenue was up 7.7% to £851m. Such levels of improvement are likely to have had a favourable impact on margins and the company states it benefitted from profitability improvement measures made in 2H ’16. The geographic split of revenue growth was predictable with the UK increasing sales 4.8% L4L, Ireland Merchanting showed 13.6% growth, Netherlands 4.3% and Belgian sales fell 3.4%. The Belgian out-turn was impacted by a switch in the business model. No specific comment is made on progress in UK plumbing and heating but the combination of remarks about the success of Selco and actual revenue in the UK rising just 2.5% (versus 4.8% L4L) suggests adjustments are still being made in that area. So it would seem that Grafton is on track though the company itself acknowledges “political uncertainty” that may alter the market environment. The market forecasts of around 49p of EPS this year and 53p are intact on the progress so far and the risks are on the upside, in our view.
Mitie has announced a new non exec Chairman today, Derek Mapp, who joins the company after having similar roles elsewhere. The clean sweep of the top roles is what happens in Mitie’s situation so this is no surprise. The most interesting element is in the quote from Phil Bentley, the CEO, in which he refers to Mitie’s journey of transformation “Beyond FM….to the Connected Workspace”. This is new stuff from the company as it starts to reveal its new strategy, due to be presented to the City in early June with the results. The strapline sounds as though Mitie might have some new angles on FM so we look forward to hearing about them.
The sector moves yesterday, as in the market as a whole, provided limited sense of direction. Investors appear to be assuming that the authorities and policy makers will take actions needed to sustain economic growth. But within the generally benign picture some companies continue to make headway. Morgan Sindall was the best riser yesterday, up 1.6% to 1123p and it is up 47% YTD but with just 36,767 the move is based on few shares traded. If we are right and 150p+ of EPS is possible in 2020 or earlier the price is cheap. Mears was the largest faller, down 2.4% to 502p but with just 20,377 shares traded the move was just ebb and flow of trading. The recent trading updates have been generally positive and while the election and Brexit slow decision making, on investment in particular, companies appear to be faced with positive trading situations in the UK.
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