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Galliford Try over the worst

Legacy contracts on the construction side will soon be out of the way
September 13, 2017

The risks inherent in fixed-price contracts came back to bite Galliford Try (GFRD) in the year to June 2017, with margins on the construction side reduced to zero and profits cut by a one-off exceptional charge of £87.9m.

IC TIP: Buy at 1389p

However, the underlying picture is a lot brighter; one of the two legacy contracts is now largely complete, although the larger of the two is not scheduled for completion until the middle of 2018. The order book remained healthy at £3.6bn, and as legacy contracts close out the group is working towards achieving margins of at least 2 per cent by 2021. Stripping out exceptional items left group pre-tax profits ahead by 9 per cent at £147.6m.

The housebuilding side painted a rosier picture, with the Linden Homes brand lifting operating profits by 16 per cent to £170.3m, as completions rose from 3,078 to 3,296. Together with a 6 per cent rise in average selling prices to £354,000, these helped to lift operating margins from 17.5 per cent to 18.2 per cent. Linden operated from 77 active selling sites, down slightly from 80 a year earlier, although the value of sales in hand rose from £510m to £545m. Efficiencies on the operating side helped to reduce overheads from 6.3 per cent to 4.8 per cent of revenue, while the return on net assets grew from 31.7 per cent to 37.1 per cent.

The land bank, owned or controlled, and including sites under option, amounted to 11,250 plots with a gross development value of £3.4bn. On top of this, Linden has 2,396 acres of strategic land, equivalent to a further 11,875 plots. All of the land required for the year to June 2018 is already in place and 90 per cent for the year after.

Revenue from partnerships and regeneration work grew by 10 per cent to £330.2m, with 594 sales at an average selling price of £186,000, up from 526 and £166,000m the previous year. Profits rose by 27 per cent to £14.9m, while operating margins increased from 3.9 per cent to 4.5 per cent.

Analysts at Peel Hunt are forecasting adjusted pre-tax profits of £173m and EPS of 167.9p for the year to June 2018 (from 150.8m and 150.3p in 2017).

GALLIFORD TRY (GFRD)  
ORD PRICE:1,389pMARKET VALUE:£1.15bn
TOUCH:1,388-1,391p12-MONTH HIGH:1,592pLOW: 1,123p
DIVIDEND YIELD:6.9%PE RATIO:24
NET ASSET VALUE:694p*NET CASH:£7.2m
Year to 30 JunTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20131.47747237
20141.77959553
20152.3511411368
20162.4913513382
20172.66595996
% change+7-57-55+17
Ex-div:26 Oct   
Payment:22 Nov   
*Includes intangible assets of £179m, or 216p a share