■ Big contract wins
■ Attractive dividend yield
■ Directors buying shares
Recent signs of growing activity at building fit-out company ISG (ISG) suggests that, while construction markets may be tough, there is still life in them.
At the end of last month the group announced that it had been awarded a £52m contract to refurbish the iconic former home of the BBC World Service, Bush House in central London - news that came hot on the heels of a £50m retail fit-out win. "We are witnessing growing improvement in activity across the London fit-out market," remarked chief executive David Lawther. That progress follows the group's successful completion of the Velodrome for last year's London Olympics.
There are other encouraging signs, too. In London, new buildings such as the so-called Walkie Talkie and Cheesegrater are starting to fill the skyline - suggesting improving demand for fit-out services. Moreover, the group isn't exclusively focused on the UK and 25 per cent of its order book is now overseas - up from 12 per cent a year ago.
Directors have been busy buying shares in their company of late, too. For instance, Mr Lawther put 5,000 shares into his self-invested personal pension (Sipp) - at 128p per share - back in April. While, last month, finance director Jonathan Houlton bought 2,132 shares at 153p, by opting for the scrip alternative to the half-year cash dividend paid.
Panmure Gordon & Co says
Buy. We have been encouraged by the strategy of diversification undertaken by the group in recent years. The UK market remains challenging, but the group is alive to opportunities while maintaining tight control on costs and structure. Contract momentum has been positive and provides greater confidence in forecasts - we expect 2013 pre-tax profit of £8.3m, giving EPS of 19.5p and a 9p dividend. The shares are trading near a two-year low and, rated on about seven times 2013's forecast earnings and backed by a 6 per cent yield, we reiterate our buy advice. Our 190p target price assumes a nine times rating and a target yield of 5.5 per cent.
Numis Securities says
Buy. We have argued for some time that ISG's high private sector exposure, plus international diversification, gives it early-cycle traits relative to its construction peers. Indeed, the fact that some 25 per cent of the group order book is overseas does demonstrate the successful growth and diversification of the group. We also expect an improving trend in Asia and the Middle East - although Europe is likely to remain variable. UK fit-out is likely to be a focal point of interest but, in our view, it's the international diversification that merits a higher rating - hence our maintained buy stance, with a price target of 200p. Recent contract wins underpin confidence, too. Expect 2013 pre-tax profit of £9m, giving EPS of 20.9p.
