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Morgan Sindall wins more orders

Created:
26 October 2007
Written by:
Jonas Crosland

Morgan Sindall continues to expand its order book which, at the half-year end in June, had already reached a record £4.1bn. Since then it has secured a contract for a mixed tenure housing development in Islington, worth £36m and due for completion by early 2009. Meanwhile, its construction division, Morgan Ashurst, has picked-up a £25m order to build two buildings as part of the redevelopment of Bracknell College.

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The group's four divisions - fit out, construction, infrastructure services and affordable housing - have been joined by a recently formed fifth division. That was created following the acquisition of ADL from Amec and comprises a mixed-use urban regeneration business and DPS, which specialises in construction and engineering services. The new arm has been renamed Muse Developments and will concentrate on large, long-term development schemes with typical durations of five to 15 years.

Among the four existing divisions, fit-out has shown the strongest performance. While the order book at the half-year stage there was up 25 per cent, the pace may start to cool as a result of recent turmoil in the financial sector, which has up until now been a key growth area.

ABN AMRO

Buy. All five divisions are performing strongly, but profits on the infrastructure side are expected to show an even greater improvement as margins grow. This is because a significant proportion of the workload is now in early stage schemes, when profit recognition is more conservative. We had previously included a £7m charge for restructuring associated with the ADL acquisition in our 2008 profits estimates, but £4m of this may now be booked in 2007. Even so, we are maintaining our forecast for full-year pre-profits in 2007 of £60.1m and EPS of 97.1p, rising to £70m and 113.1p in 2008 (£47.6m and 76.4p in 2006).

CAZENOVE

Outperform. One of Morgan Sindall's strengths is its exposure to social and affordable housing. Whereas the broader housing market may be slowing, the demand for affordable housing is set to rise further and, in 2008, the Government plans to increase its direct spend on social housing by between £3bn and £8bn. Moreover, the group has over £62m in cash, some of which is expected to be invested in its urban regeneration business, Muse Developments. Pre-tax profits for 2007 are forecast at £60m, giving an EPS of 99.9p.

IC VIEW:

FairlyPriced

Morgan Sindall remains a solid performer, with five robust trading divisions and an impressive order book. That said, the shares, at 1,679p, have risen over 300p since June and now trade on about 17 times forecast earnings. That leaves the good news looking factored-in for now. Fairly priced.

Last IC view: Buy, 1584p, 4 July 2007

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