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Stephen Rawlinson
6 June 2017 · 2 min read

Market Commentary - Housing, Infrastructure, Construction and Services 6th June 2017

VP plc, WYG, Countrywide and Fulcrum Utility Services grab the headlines in the HICS sector this morning. There were few upwards moves in the HICS universe yesterday. The downwards moves were more numerous but they were small indicating the ebb and flow of trading rather than big changes.

VP plc, WYG, Countrywide and Fulcrum Utility Services grab the headlines in the HICS sector this morning. VP has reported a 19% rise in revenue in the year to end March 2017 (achieving £249m of sales) and a 20% rise in EBITDA to £71.2m. The growth is based partly on acquisitions but also the company reports strong organic revenue growth, amount unspecified though we are told that fleet investment in the year was £58m versus £46m in the prior year. The other key metrics in the business are in line of better than expectations and none provide any cause for real concern. The company has continued to acquire post year end with two more deals. It reports that trading conditions last year were variable but generally favourable which has good read across to Speedy and others. VP has always had a bias towards hiring the more specialised end of equipment and the second of its acquisitions this year, Zenith Surveying Equipment shows that. The foundation of growth last year was the UK performance which showed a 14% rise in revenue to £220m and a 17% rise in underlying operating profit to £36m. Trading YTD in the current year is said to be positive which provides good read across for Ashtead’s UK operations and Speedy. HSS Hire is in a different situation at present and will be for a while until the new CEO finds his feet.

WYG reports a good performance last year and a new CEO. On the second issue Paul Hamer, who led the recovery of the operations will leave to take the role of CEO at Sir Robert McAlpine and Douglas McCormick, ex Atkins and Sweett will take over at WYG very soon. Despite the hiatus of Brexit in his last full year as CEO Paul was able to deliver a 14% rise in revenue to £152m and a 22% rise in adjusted operating profit to £8.8m. Clearly there was some help from FX but as with VP the UK performance was strong with revenue up 12% to £108m. Indeed the FX help came in the form of mitigating some of the 15% reduction in revenue from the Europe, Asia and Africa operations in which the Polish business suffered a particularly weak year, as indicated in earlier statements from the company. The year seems to have started well for WYG though it does point out that the election has delayed some project awards, which is normal but there have been a lot of elections! The share price has been hit badly by newsflow at it closed at 100p last night while adjusted EPS for last year were 11.9p. The valuation is therefore extraordinarily low especially given the promise of further growth this year. Strategically the business has focussed more on its UK revenues in the last 12 months and we suspect that process will continue under the new CEO, a veteran of UK consulting and a man with a very valuable customer network that should be very useful. Some investors may also look to his actions at Sweett and see read across at a corporate as well as operational level.

Himanshu Raja takes over the role of FD at Countrywide. He oversaw the first three years of the transformation of G4S as FD there so has a great deal to offer troubled Countrywide, at least in terms of its share price. From peak of near 700p in March 2014 the stock closed last night at 150p. Conditions in its markets have been difficult but there were some own goals along the way as well. This is a good appointment as it provides a steady and experienced FD who can support the industry experts in the business.

Finally this morning’s news includes Fulcrum which is remarkable turnaround story. There’s also a change of CEO as Martin Donnachie leaves soon to be replaced by the current FD Martin Harrison and the new FD will be Ian Foster. The numbers for last year are in line with revenue up 4.4% to £38m and underlying EBITDA up by 38% to £7.3m. The company ended the year with £12.6m in net cash. The dividend is more than doubled for the full year to 1.9p from 0.9p last year. The prospects are bright from what we can see with the order book up by 39% since March last year to £30m, the accreditation to adopt, run and maintain all classes of metering devices has been obtained and there are further operational efficiencies to be achieved. The business is a hybrid with its main operations being the installation and maintenance of utility services but it also owns and maintains gas pipelines and is now moving into the metering business. It therefore has good prospects ahead. The shares closed at 59p last night so with 4.1p of underlying EPS last year the valuation is not low but the asset ownership and the net cash position (market cap is £100m) go some way to explaining the valuation, along with strong growth prospects.

There were few upwards moves in the HICS universe yesterday. The downwards moves were more numerous but they were small indicating the ebb and flow of trading rather than big changes. Galliford Try was the largest faller, down 2.8% to 1186p as it is struggling to find solid support at present. Carillion, Kier and Balfour Beatty (all down by more than 1.5%) were the other main fallers as clearly the market is getting slightly more nervous about the prospects for construction. The infrastructure demand prospects are broadly unchanged but fears about rate rises, commercial developments in London and skills gaps post Brexit are current themes that may make life tougher and have a negative impact on future earnings. We cannot argue those issues are not real ones but we also know that mitigating actions are well underway in terms of costs, bid and project management and the use of off-site construction methods.


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