Numis Securities has upgraded Morgan Sindall Group PLC (LON:MGNS) to ‘buy’ after a reassuring trading update from the construction and regeneration company.
Revenue in 2017 may have risen just 9% to £2.79mln from 2016’s £2.56bn, but this fed through to a 46% hike in adjusted profit before tax of £66.1mln, versus £45.4mln the year before. Numis had forecast profit before tax of £64mln.
Very strong set of results
Earnings per share rose 43% to 121.1p from 84.7p, while the full-year dividend has been whacked up to 45p from 35p.
What Numis called “the all-important metric” of average daily cash improved from £25mln to £118mln and is expected to remain above £50mln throughout 2018.
The order book is up 6% to £3.8bn so, based on the better-than-expected 2017 earnings and a positive outlook statement, Numis has moved from ‘add’ to ‘buy’, with a target price of 1,565p.
It has increased its 2018 profit before tax forecast from £68mln to £73mln and its 2019 forecast from £75mln to £78mln, noting in passing that its 2018 profit before tax forecast for 2018 is almost three times 2014’s level, highlighting the early decisive management actions taken.
“Overall, this is a very strong set of results and with the prospect of improving margins against a strong balance sheet position, we think that Morgan Sindall is well placed for further outperformance in 2018,” the broker concluded.
Liberum Capital Markets, which already rated the shares a ‘buy’, increased its price target from 1,650p to 1,700p following the results.
“We maintain our estimated average daily net cash of £52m for 2018, which should be conservative,” Liberum said.
“We believe that Morgan Sindall’s strategy is based on organic growth, rather than acquisitions, and certainly not larger deals after its acquisitions of Amec Construction and Connaught. Clearly, balance sheet strength is increasingly important,” the broker observed, presumably with the likes of Carillion in mind.