Big possibilities at TClarke

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Big possibilities at TClarke
Master Investor Magazine

Master Investor Magazine Issue 57

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This building services group sees big possibilities for its data centre expertise and its share are very cheap, writes Mark Watson-Mitchell. 

Although this company is over 130 years old and it has offices and operating centres across the UK, it is a fair bet that you may have never heard of TClarke (LON:CTO).

However, to developers and construction companies, it is a very well-known, respected and important name.

From St Austell to Falkirk, this building services company plies its trade. From its four main regional operating areas and its 19 offices, the company has an excellent national coverage.

It spreads five main market sectors – infrastructure; residential; technologies; mechanical and electrical contracting; and finally, facilities management.

It is involved in providing building services and solutions, not for the shell of a building or the internal fabric and decoration, but instead for practically everything else.

Its areas of expertise are in powering a building, heating it, lighting it and, importantly, making it intelligent. Effectively TClarke ‘brings a building to life’.

Within its M&E contracting business, the company has capabilities in sectors, including commercial offices, retail, education, healthcare, financial services and media.

Over the last few years it has been involved in a number of UK data centre projects. It is now widening its offer into the European market, where such projects can have overall £30m-£40m values, with some topping £100m.

A split down of last year’s £326m revenue identifies that M&E contracting represented just over half the business at 53%, with infrastructure 17%, technologies 13%, residential and accommodation at nearly 10%, and facilities management and frameworks making up the 7% balance.

Estimates for the year to the end of this month suggest that a £340m turnover is possible, upon which the company could make £10m of underlying operating pre-tax profits (£7.80m), worth 17.5p (15.38p) per share in earnings, easily covering a 4.50p (4.00p) per share dividend.

There are 43,052,558 shares in issue. Institutional holders in the equity include Regent Gas (12.00%), JP Morgan (9.13%), Rathbone (6.11%), Artemis (5.88%), Hargreaves Lansdown (5.71%), Barclays Bank (5.11%), Walker Crips (5.08%), Miton Asset (4.94%), Jarvis (3.43%), and Liontrust (3.25%).

By the end of next month, we should get a trading update from the company on just how well it traded in 2019, with its final results due to be announced sometime in March.

Valued at just over £51m, this group appears to me to be excellent value. Its shares, now trading at around the 120p level, stand on just 7.7 times historic and a mere 6.8 times current-year earnings.

With a good order book (which is currently £361m and gives it visibility into 2020 and 2021), an excellent spread of operations, a tight balance sheet, and masses of upside from its evolving data centre opportunities both in the UK and Europe, I really do consider these shares to be a stand-out purchase.

My target price by the end of 2020 is an easy 165p, which would put them out on only 9.4 times earnings.

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