One look at the share-price chart for Sweett (CSG) and you might think you've missed the boat. Shares in the property and infrastructure consultant have been on a roll, but their price is just keeping up with the pace at which City analysts are upgrading their forecasts. There may be more good news when the company reports first-half results next month, so there is still value to go for.
- On a roll of earnings upgrades
- Well timed move into infrastructure and energy
- Promising international business
- Rating below sector average
- Heavy spending needed in Asia
- Project delays in Middle East
This marks a remarkable turnaround from the situation a year ago when poor performance in Australia and the Middle East and delays to a private-finance-initiative (PFI) project forced Sweett into a pre-tax loss for 2011-12. That prompted a new three-year plan, which is behind the revival in its fortunes. Simply put, Sweett is now in the right places at the right time.
Sweett's business model, which did well on contracts such as Singapore's Marina Bay Sands casino, BBC North's new broadcasting centre and the Dubai Metro, has stayed the same. That means, win contracts, manage costs and achieve financial close. But now its bosses are fussier about where the company does business. There has been a move to sell off PFI assets and a big push to expand into European infrastructure and energy, branching out from the group's established strengths in retail and commercial property.
| SWEETT (CSG) | ||||
|---|---|---|---|---|
| ORD PRICE: | 65p | MARKET VALUE: | £44.3m | |
| TOUCH: | 62p-65p | 12-MONTH HIGH: | 65p | LOW: 15p |
| DIVIDEND YIELD: | 1.7% | PE RATIO: | 13 | |
| NET ASSET VALUE: | 41p | NET DEBT: | 25% | |
| Year to 31 Mar | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2011 | 72.8 | 2.34 | 2.6 | 4.40 |
| 2012 | 72.8 | -1.02 | -2.1 | 0.60 |
| 2013 | 80.6 | 1.78 | 1.9 | 1.00 |
| 2014* | 82.5 | 4.30 | 4.8 | 1.07 |
| 2015* | 85.5 | 4.60 | 5.2 | 1.12 |
| % change | +4 | +7 | +8 | +5 |
Normal market size: 1,000 Market makers: 5 Beta: nil *WH Ireland forecasts (profits & EPS not comparable with historic figures) | ||||
This move looks well timed, particularly in the UK where energy and infrastructure projects are starting up. Sweett won commissions from United Utilities and Northern Gas Networks among others last year with revenues from energy, transport and infrastructure accounting for 17 per cent of the total, up from 10 per cent three years ago. The icing on the cake is that the retail segment is finally showing signs of life, too, with Sweett working on new shopping centres and projects, such as discount store Primark's expansion in France.
Another part of Sweett's plan is to expand its Asia Pacific presence, which it terms its "largest single growth market". Three years ago, Asia Pacific contributed 8 per cent of group revenues; last year that was 32 per cent. This expansion has required heavy spending, which depressed profit margins from the region last year. But the good news is that, though the Chinese construction market may have come off its highs, there is still plenty of work for Sweett. It won several major commissions with Chinese property developers last year as well as with foreign firms investing in China, such as Nike. Hong Kong is a hive of activity, too, with Sweett involved in underground rail, tunnelling and hospital projects. The Middle East has been tougher as building projects were delayed amid economic uncertainty. But Sweett managed to get its Middle East business back into profit last year and the latest trading update said activity was motoring again.
