Morgan Sindall in good trim despite market headwinds

When we covered Morgan Sindall’s (MGNS) full-year figures in February we noted that the construction and regeneration group wasn’t “immune to property market and macro pressures”. If anything, the challenges on this score have intensified in the intervening period, yet this was hardly apparent in the group’s half-year results release, details of which were foreshadowed in a June trading update.

Despite the deteriorating backdrop, the group’s adjusted operating profit increased by 4 per cent to £59.1mn. The outcome would have been more favourable save for an operating loss of £4.1mn at the Property Services segment. Statutory profits benefited from net finance income of £0.7mn, set against a £2.3mn net outlay in the same period last year, although net earnings bore the impact of a higher tax charge.

The standout performance was attributable to the Fit-Out business, where operating profit was 43 per cent to the good at £30.4mn on a 150 basis point increase in the underlying margin to 6.1 per cent. The Construction and Infrastructure segments also delivered double-digit increases in sales, in a part reflection of the focus on selecting the most commercially viable projects. 

Management noted that demand for the group’s Fit-Out services remains strong, particularly in London and the commercial office market, so guidance has been upgraded accordingly. Annual operating profits in the business are now expected in the range between £50mn and £70mn in the medium term, a rise of up to 40 per cent from the previous spread.

With net cash resources of over £200mn, representing 23 per cent of its market capitalisation, the group’s enterprise/cash profit multiple stands at five times, lowly enough to keep us interested. And that’s to say nothing of the 5.5 per cent forward dividend yield. Buy.

Last IC View: Buy, 1,765p, 23 Feb 2023