Tap into Morgan Sindall's momentum

The company operates in areas such as highways, rail and education, and construction and infrastructure activities account for almost half of group revenue and a quarter of profit, with a secured order book of £2.4bn at the half-year stage underpinned by framework agreements. A more disciplined approach has seen a shift away from large, high-profile projects prone to setbacks. This spurred a first-half margin improvement from 1.7 per cent to 2 per cent, while adjusted operating profit jumped by almost a quarter to £13.9m on just 3 per cent sales growth. Further progress is anticipated for the full year, with the division is targeting a 3 per cent margin in the medium term.

Designing and fitting out commercial and public office spaces, the ‘Fit Out’ business generated a record £44m of adjusted operating profit last year. But amid tighter market conditions in the first half of 2019, the margin was squeezed by 0.4 percentage points to 4 per cent. More competitive single-stage procurement is exerting pressure as bidding companies must submit the full cost of projects upfront. Still, the group expects full-year adjusted operating profit to hit the higher end of its £30m-£35m target range, with over 70 per cent of the £331m secured order book weighted towards the second half.

Bolstered by cross-party political support for more social housing, partnership housing is a key growth area. Last year's trading was knocked by rising costs and a contract delay, but performance has improved under new management. Adjusted operating profit jumped by almost two-fifths to £6.4m in the first half, with the margin up 0.7 percentage points to 2.7 per cent. Average capital employed during the period was £137m, translating to a ROCE of 10 per cent, below the three-year average of 12 per cent and 20 per cent medium-term target. But assuming average capital employed of around £150m, Peel Hunt projects ROCE will reach 19.1 per cent in 2023, demonstrating the potential on offer.

Excluding lease liabilities, a £114m net cash position at the half-year stage is a key differentiator from indebted peers. Despite faster payments to suppliers – the average time to pay construction and infrastructure invoices has reduced from 44 to 36 days – the group recorded average daily net cash of £123m. For the full year, this is expected to exceed £100m, the third upgrade of the year.