Results from a strong construction company that's set to get stronger.
It's been a hard year in the construction industry; we all know that. But it's times like this that separate the long-term quality from the not so good -- and a company I've been watching for a while, Morgan Sindall (LSE: MGNS), has just released its results for 2011.
And they were pretty much bang in line with forecasts, though the share price lost about 2% by the time of writing, sitting at 690p.
The company confirmed that economic conditions remain tough, but told us that the medium-term future is looking brighter, with chief executive John Morgan saying:
"Whilst we acknowledge the challenges that lie ahead, we are confident that the investment in regeneration and focus on opportunities in growing sectors of the market will lead to higher quality and sustained medium-term returns."
Even at this stage, 2012 is looking decent, with a forward order book of work amounting to £3.4bn, which is only a little down on the £3.6bn it stood at in early 2011.
Getting back to the results themselves, we actually saw slightly higher revenue, at £2.2bn, which was 6% ahead of the previous year. That led to a pre-tax profit fall of 2% to £40m (though before amortisation and non-recurring items, the fall was a less healthy 12%), largely due to competitive pressure forcing margins down.
Reported basic earnings per share (eps) were up 10% to 77.5p, though adjusted eps came in at 82.5p, down from 92.9p.
As expected, the full-year dividend payout was held at 42p, which represents a yield of 6%. And it's near enough twice covered by earnings, so it looks like a fairly safe bet for the near- to middle-term future, too.
Government spending cuts have been one of the biggest worries for Morgan Sindall investors, but to help assuage that, the balance of contracts has shifted, with only 50% of work being in the public sector in 2011, down from 70% two years ago. With turnover remaining strong, lost government work is clearly being replaced by more private sector contracts.
And one sign that people following the housing and construction industries should see as a bright one is that Morgan Sindall's affordable housing division saw a 14% rise in operating profit, mostly driven by the acquisition of Connaught.
So what do I think now after previously waxing enthusiastically about this company? Well, the share price has risen strongly since late last year, and is up 15% since I examined the company in August.
It's in a cyclical business, and even during the downward part of the cycle it's managing to pay twice-covered 6% dividends, while maintaining an end-of-year net cash position (£109m, down from £149m in 2010), and the shares are on a forward price-to-earnings of only about 9.
That still looks like a bargain to me, and I expect investors to do well over the next few years.
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