Market Commentary - Housing, Infrastructure, Construction and Services 30th May 2017
The only formal item of news this morning is the appointment of John Tonkiss as COO at McCarthy and Stone. Moves on Friday last saw Morgan Sindall soar to greater heights rising 6.2% to 1274p on 159,908 shares traded. The sector performed broadly in line with the market’s 7% rise last week. It therefore remains up around 11% overall versus the market up by 6.5%.
The only formal item of news this morning is the appointment of John Tonkiss as COO at McCarthy and Stone. He joined the company in early 2014 and after several roles became National Operations Director in September 2016. Immediately prior to joining McStone he was CEO at Human Recognition Systems.
News later this week comes from London Metric Property and Telford Homes tomorrow with Finals. On Thursday Watkins Jones delivers its interims and on Friday Amec Foster Wheeler has its AGM and the UK Construction PMI data for May is revealed. It’s school half term, as most readers will know so it’s all gone quiet, election or no election.
Moves on Friday last saw Morgan Sindall soar to greater heights rising 6.2% to 1274p on 159,908 shares traded. The investment proposition in the last 12 months has been based on the company reaching industry average margins, which is happening. Progress has been accelerated by market conditions being better than expected in Fit-Out and by good contract wins in other areas. A Balance Sheet with net cash and no pension issues help as well! Progress towards 160p of EPS by 2020 (our thought, not the company’s) or earlier is solid so the price at close on Friday is underpinned by good prospects.
Babcock was the backmarker, falling just 0.9% to 942p. Expectations around the finals for 16/17 were high and the shares hit 1030p in intraday trading on the day of the release. But they have since retraced to the pre results level. Performance and prospects remain unconvincing and yet another restructure of the divisions always raises concerns. Optically it looks cheap with 86p of EPS expected this year though with just 30p of dividend the yield is sub market levels. Avincis was not well timed, with hindsight and has not cured the systemic issue of over dependence on UK MoD. Sentiment will turn, in our view but a better balance sheet and a few other changes might be needed to convince investors.
Moves last week.
The sector performed broadly in line with the market’s 7% rise last week. It therefore remains up around 11% overall versus the market up by 6.5%.
The best performer last week was SIG, up 10% to 154p, the highest level since October 2015. As with Morgan Sindall all SIG needs to do is get to industry average margins, easier said than done but a credible target nonetheless. If it does that a target price of 200p a share is viable based on 13-14x 15p of EPS. The fractured relationships with suppliers are being mended and that is key as the value added by SIG in its product areas can be considerable. Its position is less open to disintermediation via the internet than with other materials distributors.
Galliford Try was the weakest performer last week, down 2.5% and it remains down 3.9% YTD despite the UK housebuilders index being up near 19%. The problems in construction were unexpected in terms of their scale and too large for other areas that are performing well to balance out. The company is holding a meeting later today for analysts so we can explore what the recovery plan might be in some detail.
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