A weak first half for its rail and domestic appliance controls businesses leaves engineer
Margins improved and underlying operating profit inched up by 2 per cent at constant currency to £102m, despite a 10 per cent drop in rail profits to £45m. Busy reorganising itself, Network Rail has been slow dishing out contracts, but a significant pick-up is predicted during the second half, and Invensys stands a good chance of winning new orders outside of the framework agreements, too. It couldn’t repeat last year’s big overseas deals in Saudi Arabia and Turkey, either, but rail orders are still up 6 per cent and the Middle East should be a lively source of future income. A partnership with China Southern Rail is also beginning to bear fruit.
With a pick up in demand for appliance controls not expected until next year, much will depend on operations management work. Revenue here rose 7 per cent in the six months and, with margins approaching double-digits, operating profit shot up by 18 per cent to £64m. Software sales grew fastest as Invensys worked off a strong order book built up last year, and prospects in emerging markets look good. Reassuringly, the Chinese nuclear projects are going to the revised plan, too.
Bank of America Merrill Lynch expects full-year adjusted pre-tax profit of £202m and EPS of 20.1p (£141m and 13.4p in 2012).
|ORD PRICE:||222p||MARKET VALUE:||£1.81bn|
|TOUCH:||221-222p||12-MONTH HIGH:||279p||Low: 166p|
|DIVIDEND YIELD:||2.0%||PE RATIO:||16|
|NET ASSET VALUE:||58p*||NET CASH:||£175m|
|Half-year to 30 Sep||Turnover (£bn)||Pre-tax profit (£m)||Earnings per share (p)||Dividend per share (p)|
Ex-div: 21 Nov
Payment: 21 Dec
*Includes intangible assets of £459m, or 56p per share
Without support from takeover speculation, Invensys' shares have struggled, so, until promised improvements arrive, a forward PE ratio of 11 looks fair. Hold.
Last IC view: Hold, 211p, 17 May 2012