Market Commentary - Housing, Infrastructure, Construction and Services 31st January 2017
It’s pretty quiet on the last day of the month in terms of news flow. There was no news yesterday at any stage from Atkins or CM2H following the press reports that they are courting each other. SIG was the backmarker on a day when most HICS stocks took a tumble.
It’s pretty quiet on the last day of the month in terms of news flow. Lavendon’s board accepted that the 270p offer from Loxam on Friday as being as good at it will get, TVH having said 261p is enough. Today Loxam have issued the revised offer document with a first closing of 14th February. The main talking point is what TVH might do with the 20%+ of Lavandon’s shares it bought but the outcome is probably easily predictable. Nice Trade! Alumasc, the specialist building materials company has announced an excellent first half to December 2016 in terms of sales, which are mainly to the UK market. Revenue was up 17% to £50.7m but underlying PBT rose by only 2% to £4.1m as it was held back by the effect of FX on raw materials and, we are told the adverse impact of investment in expansion. Operating margins in 2H are expected to increase from 8.2% in the first half (versus 9.5% in 1H 14/15) as the operational gearing impact of higher sales becomes more evident. Net cash at the year end was £5.2m which is to be used to relocate two manufacturing facilities. The read across from Alumasc is positive, though they talk of UK construction expanding just 1% in the six month period and their UK sales increasing by 9%.
There was no news yesterday at any stage from Atkins or CM2H following the press reports that they are courting each other. That did not stop Atkins rising 6% to 1484p and leading our group of 22 closely watched stocks. You know what, at 1484p the shares look very good value in any event, in our view, given market forecasts of 120p for the year to end March and 124p for next year, depending more than usual on FX moves. As indicated yesterday, CM2H making an offer for Atkins is probably the cleanest way of getting the two sides together, with only the price and the Atkins pension deficit as real stumbling blocks.
SIG was the backmarker on a day when most HICS stocks took a tumble. It fell 2.7% to 102.7p as investors looked unfavourably on this part of the market. We read little into the move and retain a positive outlook for the share price; usually we look to buy a good company at a cheap price, in SIG’s case we believe that the share price does not reflect the potential a new CEO and the new FD can release. So we are unusually at this stage recommending the share price more than the company, as it is constituted and operated at present. With £2.5bn of sales, recovery expected in Euroland and talk of investment in green and environmental projects resuming we suspect SIG has potential. We are also positive about its expansion into modular construction and Air Handling equipment distribution. We are positive about SIG’s prospects and believe that with c 10p of EPS in the year just ended, as expected in the market and in this year the stock’s valuation is not stretching.
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