In absolute terms, James Fisher (FSJ) trades on a reasonably high multiple. This fact alone offers the best explanation as to why the engineering group’s shares have started 2018 on shaky ground. Equity investors’ appetite for full valuations is currently being tested by market nerves, and while some holders in the marine services company may have sold out on news of chairman Charles Rice’s imminent retirement, the stock’s ensuing 14 per cent drop looked overly harsh.
Put simply, James Fisher should not look cheap because it is a strong, growing business – as full-year numbers attest. Underlying operating profit margins and profit in the tankships, marine support and specialist technical businesses all ticked up. At each, the return on capital employed passed the group target of 15 per cent, although returns at the specialist technical division were constrained by a build-up in working capital in the delivery of two submarine vessels for the Indian Navy.
Post-period, the contract has reached a significant payment milestone, which should mean this year’s cash conversion improves on 2017’s lowly rate of 56 per cent. An increase in client maintenance budgets could also bode well for a recovery in the offshore oil segment – which once upon a time contributed £20m in profits each year – although Nick Henry is cautious after several “false dawns”.
Prior to these results, Numis was forecasting adjusted pre-tax profit of £53.6m and EPS of 86.3p in 2018, up from £49.7m and 81p last year.
| JAMES FISHER & SONS (FSJ) | ||||
| ORD PRICE: | 1,440p | MARKET VALUE: | £797m | |
| TOUCH: | 1,584-1,588p | 12-MONTH HIGH: | 1,775p | LOW: 1,340p |
| DIVIDEND YIELD: | 1.8% | PE RATIO: | 20 | |
| NET ASSET VALUE: | 568p* | NET DEBT: | 46% | |
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2013 | 414 | 46.2 | 76.6 | 20.00 |
| 2014 | 445 | 49.2 | 80.2 | 22.00 |
| 2015 | 438 | 46.2 | 79.7 | 23.80 |
| 2016 | 466 | 44.9 | 79.4 | 26.15 |
| 2017 | 505 | 49.0 | 80.1 | 28.70 |
| % change | +8 | +9 | +1 | +10 |
| Ex-div: | 5 Apr | |||
| Payment: | 11 May | |||
| *Includes intangible assets of £199m, or 397p a share | ||||
