Shares digital

Morgan Sindall (MGNS) – Finals PTP: £57.6m (£47.6m) Divi: 28p (20p)

Full year figures from Morgan Sindall, Shares’ ‘hot stock for 2008’ (19 December 2007) suggest mixed-model contractors could withstand credit crunch-related hiccups in the industry. Investors should be reassured by the solid outlook and hold on to the shares even though they are roughly flat on our £11.21 tip price in December.

Group revenues came in 41% higher to to £2.1 billion, and taxable profits, after amortisation charges, was £57.6 million, 21% higher than a year ago, slightly above consensus. The total dividend was reassuringly increased by 36% to 38p. Cash flow was strong, with net cash of £219 million at the end of 2007, 130% up form the year before, thanks to improved profitability and working capital management.

The integration of the acquired AMEC’s businesses, which contributed £100 million in revenues to the infrastructure services division, was smooth. The construction division registered a 44% increase in profits and a 64% increase of the order book to £810 million. Good margins at the fit out division, with profits up 15%, will have to be watched closely as the impact of a more sluggish commercial property market will feed in later this year.

Affordable housing and urban regeneration did well and will be key this year if investment in the private sector slows down. The shares jumped 15% on the day of the results (19 February) but dipped afterwards. At the current £10.50 level, they are 17% up from when they bottomed in January and still look good value with a 9.7 times 2008 PE and decent 3.6% forecast yield. Most importantly, the business is in better shape than others.

Shares says: Among the healthiest plays in the sector.

by: Carlo Svaluto