A serial dividend raiser 17% cheaper than four months ago.
When I last wrote about FTSE 250 support services company Carillion (LSE: CLLN) in February, I said: "I'm sure that it could make a decent medium- to long-term investment at the current valuation, but the value seeker in me is likely to wait for one of Mr Market's sale periods..."
That opportunity might just have arrived with recent market weakness leaving the shares at around 267p (market cap: £1.15bn) and yielding 6.3% with last year's payment.
A rising dividend
The company describes itself as one of the UK's leading support services and construction companies, and a 9% dividend hike topped the list of positives in the 2011 full-year results. The updated figures look like this:
| | 2009 | 2010 | 2011 |
|---|
| Revenue (£m) | 4504 | 4237 | 4153 |
| Net cash from operations (£m) | 175 | 127 | 103 |
| Adjusted earnings per share | 37.3p | 39.4p | 43p |
| Dividend | 14.6p | 15.5p | 16.9p |
| Cash (£m) | 267 | 397 | 491 |
| Borrowings (£m) | 242 | 277 | 541 |
Obvious positives are the rising adjusted earnings per share, dividend and cash figures. However, net cash from operations and borrowings figures have been trending in the wrong direction and warrant further analysis.
Cash flow and debt
Handily, the Consolidated Cash Flow Statement presents a line called "cash generated from operations before pension deficit recovery payments, rationalisation costs and Eaga Partnership Trusts related charges", and at that stage cash flow was about £190m in 2011 compared to about £182m the year before.
The reduced net cash flow figure for 2011 appears to boil down to increased spending on "rationalisation costs", "financial costs" and "acquisition costs", all arguably one-off expenditures.
Carillion increased its borrowings to help fund the acquisition of CES, which it describes as "the largest independent energy efficiency services company in the UK". Gross gearing is now about 50%, which translates to a more comfortable looking 5%-or-so on a net basis, given the company's steadily increasing cash pile.
Outlook
Recent guidance came with a statement on 2 May. There was a good start to the year with a strong order book and a record pipeline of contract opportunities as reasons for optimism. Indeed, the directors see robust growth opportunities in the Middle East and Canada.
Right now, the shares are on a forward price-to-earnings ratio of around six for 2012, which compares well to peers like May Gurney (LSE: MAYG) on a forward multiple of about seven and Mitie Group (LSE: MTO) on around 12.
At this level, I think the shares are a cautious buy, but it's worth bearing in mind their cyclical nature.
Let me finish by adding that more share ideas can be found within "Top Sectors For 2012" -- a Motley Fool study of three favourable sectors that could offer potential opportunities for long-term investors. The report is free.
Further investment opportunities:
> Kevin does not own Carillion shares.
