Galliford Try Holdings PLC (LSE:GFRD) is “undervalued every which way”, that’s according to Liberum Securities analyst Joe Brent.
Liberum in a note on Monday repeated its ‘buy’ recommendation which comes with a 270p price target, compared to a market price of 154.15p.
Full-year results, released last week, saw earnings per share 6% ahead of Liberum’s estimates, Brent noted.
“The disciplined approach to contract bidding and the strength of the balance sheet remain key to achieving the FY 26 targets, which indicate 77% upside to our FY 23 EBIT estimate,” Brent said.
“At the results, management announced a £15m buyback which demonstrated the strength of cash flows and the willingness to return excess cash to shareholders.”
Breaking down the value disconnect, the analyst highlighted that the company’s cash position (at the end of the financial year plus the value of its public-private partnership business would amount to 201p per share, attributing negative value to the firm’s trading businesses.
Moreover, Brent points out that this still excludes any potential to recover any of the £95mln of outstanding legacy contracts.
Looking ahead, he added: “The share price is likely to react well to continued margin improvement, possible upgrades and continued strong cash generation.
“While macro indicators are mixed, the problem contracts appear to be in the past, with potential material upside on one.
“More good news here should drive the shares higher, particularly given that they are trading at a discount to average cash + PPP portfolio. The buyback of £15m announced alongside the FY 22 results equates to c. 8% of the company’s market cap and hence should provide technical upwards pressure on the shares.”
Galliford last Wednesday hiked its dividend by 70%, announced a £15mln share buy-back, and gave a confident outlook after a year where profits grew more than expected.
The construction group, which focuses on the education, health and water sectors as well as highways, reported a £19.1mln profit before tax and exceptional costs for the year to end-June 2022, which was up 68% on the prior year and well ahead of the City consensus forecast of £17.7mln.
With revenues inching up to £1.24bn from £1.13bn, its divisional operating margin was lifted to 2.4% from 2.0%, on the way to the 3.0% target by 2026. Average net cash increased to £174mln from £164mln.
With directors confident about the outlook, given a “high quality” £3.4bn order book and 90% of revenue for the new financial year already secured, the final dividend was raised by 66% to 5.8p. Together with the interim dividend of 2.2p, this gave a total dividend of 8.0p for the year, up from 4.7p a year ago.
In recognition of the UK’s cost of living crisis, the board also approved a “one-off payment” totaling £1mln for this autumn for over 1,800 employees.
“We continue to see good demand across our core markets and anticipate continued progress in the new financial year, in line with our targets,” the company said in the results statement. “Through our active engagement with our supply chain and disciplined approach to risk management, bidding and careful project management we have successfully managed and mitigated the challenges of supply shortages and inflation without any overall impact on trading or margin.”
Galliford Try chief executive Bill Hocking also highlighted the progress made to the sustainable growth strategy he and finance director Andrew Duxbury launched a year ago.
He said the significant increase in shareholder dividends and capital returns was a result of the new commitment to “robust risk management, careful contract selection and operational excellence”, which has left it “well capitalised and [with] a strong and selective order book”.