■ Record profits expected
■ Strong land bank
■ Construction unit holding up
Construction and housebuilding group Galliford Try (GFRD) appears to be taking full advantage of an upturn in the UK housing market. The group's trading statement this month revealed that profits for the year to end-June would reach record levels, while the land bank has grown 8 per cent to 11,300 plots.
Average private sales prices have risen by 5 per cent to £262,000, and sales carried forward to the new financial year rose 15 per cent from a year earlier - to a record £313m. All this has helped to boost the operating margin, from 11.8 per cent to around 13 per cent. Moreover, 86 per cent of the land bank comprises land bought at cheaper market values, while all the plots for the current year have been secured, and 87 per cent for the year to end-June 2015.
The construction side has had a much tougher time, but has held up well, with the forward order book unchanged from a year earlier at £1.65bn. While pressure on pricing remains fierce, the group has managed to win a number of significant contracts, and 82 per cent of projected revenue for the current year has been secured.
Jefferies says…
Buy. Galliford Try set new records in the latest year and we are upgrading our pre-tax profit estimate for the year to end-June 2013 by 2.8 per cent to £74m, pushing up EPS from 69.4p to 71.3p. For 2013-14, we expect to see pre-tax profit of £82m and EPS of 79p. On top of the record trading performance on the housebuilding side, the construction division has maintained the size of its order book despite strict contract selectivity. Trading on a price to book value ratio of 1.47 times, Galliford's shares are cheaper than the sector average of 1.53 times and we are maintaining a price target of 1,176p - suggesting upside of nearly 20 per cent.
Panmure Gordon & Co says…
Sell. Galliford Try's stellar performance on the housebuilding side is much in line with the solid performances delivered by other housebuilders. We are actually more impressed by the resilient performance at the construction business, where management has been successful in maintaining the order book while preserving margins. For 2014 we are forecasting pre-tax profits of £86.2m and EPS of 81.2p but, trading on twice net asset value, and with the quieter summer months ahead, we think the shares will slip back 10 per cent.
