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Morgan Sindall builds on strong momentum

Company upgrades the outlook on robust order book for fit-out business
Morgan Sindall builds on strong momentum
  • Higher revenue targets set for construction and infrastructure arms
  • Cost pressures largely being contained

Things must be going well for your company if the person who started it 45 years ago describes it as being in its “best shape ever”.

Indeed, Morgan Sindall (MGNS) co-founder and chief executive, John Morgan, is confident enough in his construction group’s performance to set ambitious medium-term targets for the business. 

The two arms of its biggest division, construction and infrastructure, turned over £694mn and £826mn, respectively, while also beating operating margin goals last year. New targets are for both to achieve revenue of at least £1bn, while maintaining or improving on existing margins. 

The danger for construction companies in stretching order books is that it can lead to them to take on unsatisfactory work – problem projects that can wipe out a company’s entire profits given the industry's thin margins.

However, as pointed out in a recent Shares That Have It All screen, Morgan Sindall has been better than many of its peers in contract selection, leading to relatively few impairments.

“The margin target for us is much more important than turnover. Because we’ve got a strong balance sheet, we will reduce turnover dramatically if we can’t find the right work,” Morgan said.

Like others in the sector, the company is dealing with much higher costs but has generally offset these through contract protections and operational efficiencies. Inflation has challenged the viability of some development schemes being undertaken by its urban regeneration arm, though.

The company upgraded earnings forecasts four times last year and has already said this year’s result will be “slightly above” expectations, which Morgan said is due to the level of orders being generated by its fit-out business as companies remodel office space to embrace hybrid working.

The company’s shares have climbed by 50 per cent over the past year, but at at 10 times broker HSBC’s earnings forecast of 213p per share, its valuation doesn’t look to challenging. We maintain our buy recommendation. Buy.

Last IC View: Buy, 2,360p, 4 Aug 2021

MORGAN SINDALL (MGNS)   
ORD PRICE:2,200pMARKET VALUE:£1.02bn
TOUCH:2190-2215p12-MONTH HIGH:2,730pLOW: 1410p
DIVIDEND YIELD:4.2%PE RATIO:10
NET ASSET VALUE:1,022p*NET CASH:£305m
Year to 31 DecTurnover (£bn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
20172.7964.911945.0
20182.9780.615053.0
20193.0788.615859.0
20203.0360.899.861.0
20213.2112621292.0
% change+6+107+113+51
Ex-div:28 Apr   
Payment:18 May   
*Includes intangible assets of £222m, or 478p a share