Mouchel’s full-year results were pretty bleak compared with the promise shown by the group a year ago. While management has been getting a handle on the problems that caused June’s profit warning, there are concerns that the tightening of government spending could produce fresh challenges.
The difficulties being experienced in Mouchel's rail business have been dealt with by exiting these operations. Meanwhile the troubled consultancy division has undergone a management overhaul and restructuring but demand itself remains weak. In Dubai, where Mouchel was caught up in the property crash and suffered non-payment of bills, the group has taken a £15m impairment charge that covers about half the money still owed to it.
However, against this myriad of problems Mouchel's core business produced a relatively-resilient performance given the tough trading environment. Indeed, organic revenue growth of 9 per cent was only just shy of the 10 per cent to 15 per cent target and underlying operating profits rose 13 per cent to £47.3m before being wiped out mainly by restructuring and impairment charges of £50m.
Tightening public sector purse strings will cause some problems for the group and about £20m of fiscal-stimulus-related spending that the highways division has benefited from is unlikely to be repeated. However, chief executive Richard Cuthbert also believes the need for the public sector to produce savings will provide a significant boost in demand for Mouchel’s outsourcing business. What’s more, Mouchel’s traffic handling technology continues to represent a cheaper congestion solution than road building and could therefore also benefit.
It's worth noting that many of the capital projects that Mouchel is involved with relate to the water industry which is expected to remain under regulatory pressure to spend even if the current review period causes some disruption. And Mouchel’s involvement with maintenance of essential infrastructure should also support prospects. The group’s contract-win rate was once again inside its target range of one third to two fifths of bids.
Broker Panmure Gordon expects underlying pre-tax profit of £41m and EPS of 26.6p in 2010 (2009: £40.1m/26.4p).
| Mouchel (MCHL) | ||||
|---|---|---|---|---|
| ORD PRICE: | 228p | MARKET VALUE: | £256m | |
| TOUCH: | 228-229p | 12-MONTH HIGH: | 385p | LOW: 148p |
| DIVIDEND YIELD: | 2.7% | PE RATIO: | na | |
| NET ASSET VALUE:* | 60p | NET DEBT: | 151% | |
| Year to 31 Jul | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2005 | 308 | 20.9 | 13.5 | 3.3 |
| 2006 | 374 | 26.4 | 17.4 | 4.1 |
| 2007 | 448 | 48.1 | 31.5 | 5.0 |
| 2008 | 657 | 26.3 | 17.9 | 6.1 |
| 2009 | 741 | -6.5 | -11.7 | 6.1 |
| % change | +13 | – | – | – |
Ex-div: 21 Oct Payment: 18 Dec *Includes intangibles of £170m, or 152p per share | ||||
