26th Sep 2022 18:28
(Alliance News) - Galliford Try's annual results - released last Wednesday - showed the firm's continued progression towards its targets, with Liberum "very optimistic" about its future.
"The disciplined approach to contract bidding and the strength of the balance sheet remain key to achieving the financial 2026 targets, which indicate 77% upside to our financial 2023 [adjusted] earnings estimate," Liberum analyst Joe Brent said.
The Uxbridge, England-based construction company reported a pretax profit before exceptional items of GBP19.1 million in its final year results, which ended in June.
However, exceptional items - such as the GBP7.7 million acquisition of nmcn's water business and the GBP6 million investment in the implementation of cloud-based IT systems - brought the company's profit down to GBP5.4 million, a 53% fall on the GBP11.4 million recorded last year.
Galliford noted that there were no exceptional items last year. On an adjusted basis, the pretax profit was 68% higher than last year.
Revenue increased by 9.7% to GBP1.24 billion from GBP1.13 billion resulting primarily from growth in the company's infrastructure section. Revenue in the infrastructure section increased thanks to the acquisition of nmcn's water business and the growing momentum behind the AMP7 programme. AMP7 is the water industry's asset management plan for the 2020-2025 period, developed by Ofwat in collaboration with water companies.
Liberum said the firm is "undervalued every which way".
"FY22 cash plus the PPP portfolio are worth 201p per share versus a share price of 161p, attributing negative value to the trading businesses. That is before we consider the potential to recover a further GBP95 million - about 54% of the company's market cap - from legacy contracts, which could lead to more buybacks."
Galliford closed 4.9% lower in London on Monday at 153.08p, and has fallen 14% in 2022. Liberum holds a 'buy' recommendation for the stock with a target price of 270p.
Galliford is paying a final dividend of 5.8 pence, up 66% from 5.8p last year, resulting in a total dividend of 8.0p, up 70% on last year.
Looking forward, Galliford highlighted its GBP3.4 billion order book and said 90% of its 2023 revenue was already secured.
Brent continued: "The share price is likely to react well to continued margin improvement, possible upgrades and continued strong cash generation. While macro indicators are mixed, the problem contracts appear to be in the past, with potential material upside on one.
"More good news here should drive the shares higher, particularly given that they are trading at a discount to average cash plus PPP portfolio. The buyback of GBP15 million announced alongside the FY22 results equates to about 8% of the company's market cap and hence should provide technical upwards pressure on the shares."
The company said it was encouraged by the pipeline of opportunities across its sectors in the public, regulated and private markets. The UK government's planned investment in economic and social infrastructure should also support growth in Galliford's core markets.
Liberum is "very optimistic" about Galliford's Building and Infrastructure businesses.
"Margins had been negatively impacted in the past by the significant restructuring of the Construction business and cost overruns on contracts such as AWPR. With the restructuring complete and legacy contracts rolling off, notable margin progress has already been made and we expect healthy margin progression to continue in the medium term. The FY22 results showed progress towards management's 3% target margin and management has indicated that margins will increase more towards the 2026 target as execution gets better and the mix improves," it added.
By Paul McGowan; [email protected]
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