BULL POINTS:
■ Cheap land bank
■ Strong construction order book
■ Nice dividend yield
■ Shares trade below net asset value
BEAR POINTS:
■ Exposed to spending cuts
■ Housing market remains fragile
Galliford Try makes a living by building houses and operating in the construction industry, two sectors of the UK's economy that have been battered by a scarcity of mortgages and spending cuts. But Galliford is doing rather well in both departments. Housing has been boosted by a better than expected spring and a bias towards the southeast of England and the group has been particularly adept at picking up construction work.
| IC TIP RATING | |
|---|---|
| Tip style | Value |
| Risk rating | Medium |
| Timescale | Long term |
| What do these mean? Find out in our | |
So its management is upbeat, maintaining that profits for the year to the end of June will be significantly better than earlier estimates. And chief executive Greg Fitzgerald has been putting his money where his mouth is - buying £407,000-worth of shares in June.
The company has done well to secure all of the land with detailed planning permission that it needs for the houses it plans to build in 2011-12, as well as two-thirds of the plots planned for 2012-13. But the important point for future profits is that the proportion of sales to come from new land, secured at current market values, is rising strongly as land bought earlier at higher prices is used up - around two-thirds of Galliford's land bank of 10,150 plots has now been secured at current market values.
On the affordable housing front, there is keen competition for work on offer, so management deserves to be applauded for securing the £347m Gateshead regeneration project to deliver 2,400 homes on 19 sites, lasting up to 2026. And in late May Galliford was selected as a partner on three affordable housing agreements worth £584m over the next four years.
| GALLIFORD TRY (GFRD) | ||||
|---|---|---|---|---|
| ORD PRICE: | 488p | MARKET VALUE: | £399m | |
| TOUCH: | 487-488p | 12-MONTH HIGH: | 510p | 270p |
| DIVIDEND YIELD: | 4.5% | PE RATIO: | 10 | |
| NET ASSET VALUE: | 532p | NET DEBT: | 7% | |
| Year to 30 Jun | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2008 | 1.83 | 60.3 | 82.5 | 21.7 |
| 2009 | 1.46 | -26.9 | -34.4 | 10.9 |
| 2010 | 1.22 | 19.2 | 14.7 | 12.5 |
| 2011* | 1.30 | 36.0 | 31.1 | 16.0 |
| 2012* | 1.53 | 58.0 | 51.0 | 22.0 |
| % change | +18 | +61 | +64 | +38 |
Normal market size: 700 Matched bargain trading Beta: 0.6 *Numis estimates (profits and earnings not comparable with historic figures) | ||||
The construction side remains tough as well. So Galliford has done well to maintain its order book pretty much where it was in 2009 at £1.8bn, and to have already secured 72 per cent of its targeted revenue for 2011-12. And this is before the most recent contract wins are taken into account. These include a £200m joint venture to upgrade waste-water treatment works in Liverpool, a £50m schools project and an £80m deal with Thames Water.
There is still construction work up for grabs, although the full extent of public sector spending cuts is yet to be felt. Meanwhile, on the housing side, the southeast remains least affected by slow economic growth, but the scarcity of mortgages and a squeeze on disposable incomes will certainly constrain the housing market.
Galliford Try's finances are in pretty good shape, too. Decent cash flow has been used to reduce debt which is on course to fall to zero. And an agreement for a £325m revolving credit facility over four years was secured in May. There is also a dividend comfortably covered by earnings, which generates a nice dividend yield, and management plans to nudge up the payout ratio to one-third of pre-tax profits.
