Morgan Sindall's focus on quality is showing through

Several factors contribute to this impressive growth. The fit-out division is one of the key contributors. This was a surprise because although, a year ago, the company revealed a record order book, in the wake of the EU referendum management was understandably cautious. If companies started to leave the UK, demand for office fit-out would diminish. However, this simply hasn’t happened.

There has also been a general improvement in profit margins, notably on the construction and infrastructure side, although these are still modest. Morgan Sindall has avoided the troubles seen at some of its competitors by tackling its problems at an early stage, addressing unattractive contracts and being much more selective about the work it takes on. Another by-product of this has been cash generation, with net cash at the half year standing at £97m.

Morgan Sindall has a diverse revenue stream, operating through six divisions. These comprise construction and infrastructure, fit-out, property services, partnership housing, urban regeneration, and investments. On the infrastructure side, it specialises in civil engineering services, such as tunnelling, utilities, and mechanical and electrical services. The secured order book has been growing steadily and includes work on the HS2 rail link, which will be worth around £100m over four years. Work on the next phase of the Sellafield site in Cumbria has benefited from a five-year extension, and this could be extended again to give a total value of £1.1bn. And more recently it won a two-year extension on a framework agreement with Western Power Distribution for excavation and cable laying work. There is also work secured on upgrades at Heathrow airport and tunnelling work for London Underground. A clear characteristic of all these contracts is that they provide long-term revenue visibility.

Profit margins tend to be relatively low; the medium-term target in construction is 2 per cent and 2.5 per cent in infrastructure, but reaching these targets has been helped by maintaining a much higher-quality order book. Improvements have also been made in operational delivery on the construction side. Much of this has been made possible by having experienced management, with chief executive John Morgan having been at the helm for 23 years, having co-founded Morgan Lovell in 1977 before a reverse takeover into William Sindall formed the current group.

Urban regeneration work has been expanding significantly, with revenue in 2016 up 42 per cent from a year earlier. Residential sale completions last year totalled 566, highlighted by the regeneration of Lewisham Gateway in south London, where two residential developments were completed and all 193 units pre-sold.

Revenue diversity gives Morgan Sindall considerable protection from pressures within any one of its divisions. That said, the group would naturally feel the effects of weak economic conditions that caused a reduction in infrastructure spending.