It could be well worth taking advantage of the lower share price of the Driver Group (LON:DRV) after its recent profit warning, writes Mark Watson-Mitchell.
About six weeks ago Driver Group announced that its first-half figures would be impacted by the recent slowdown in order conversions from its Middle Eastern and Asian based clients. Its shares fell from around 70p to as low as 51p on the news in reaction. That was, I think, an overreaction, which is probably why the shares have since recovered slightly to 59p.
Driver Group is a multi-disciplinary consultancy which provides commercial management, planning, programming and scheduling, and dispute resolution support services. It operates through 25 offices in 13 countries, spreading over 5 continents.
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In short, Driver is in the ‘expert’ business and has been for forty years. Its teams have extensive expert knowledge in high profile litigation and arbitration. They deliver an uncompromised service across a wide range of sectors and expertise covering the construction and engineering industry. They specialise in quantum, delay analysis and technical; which include architectural; mechanical; electrical; and project management. The group operates through three main divisions: Driver Trett; Driver Project Services; and Diales.
Driver Trett provides specialist dispute avoidance and dispute resolution services to its clients from the outset of a project to its completion, and beyond. It offers strategic commercial improvement and contract management services; live planning and programming; assistance and forensic delay analysis; dispute avoidance, dispute resolution support and expertise; as well as training and seminars tailored to its clients’ needs.
Driver Project Services provides site-based commercial management, project management and planning and programming services to its clients. Its staff work seamlessly with its clients’ teams, offering additional project support at the point of need or for the duration of the project.
Diales is the Group’s Expert Witness and expert advisory services provider. Its world-class quantum, delay, and technical experts assist in litigation, arbitration, and adjudication, as well as in negotiation, mediation, and other dispute resolution forums. It also provides highly experienced adjudicators, arbitrators, and mediators, as well as offering third party neutral evaluation and determination.
The profit warning statement noted a number of Expert Witness/Dispute projects which were expected to convert in the first half to end March 2019 had been temporarily delayed or deferred. This was the case particularly in its Middle Eastern and South-East Asian markets.
That was disappointing, especially as the new business enquiry pipeline was at a historically high level, some 20% higher on a year-on-year basis. It is said that there are significant opportunities for the group in the second half and that the company is already making good progress in converting those leads.
However dire that profit warning may sound, the company is still expecting to generate revenue of some £60m and make around a £3.5m pre-tax profit for the current year to end September 2019. That should be worth about 5p per share in earnings, more than amply covering an estimated 0.9p per share dividend for the year.
Already brokers are suggesting that £4m pre-tax is likely for the coming year, on the back of £63m of turnover. That profit level would be worth 5.75p in earnings and could push its dividend up to 1.3p per share.
There are 53,962,868 shares in issue, with the equity having a good professional feel: Sanford DeLand Asset Management hold 19.69%; Livingbridge have 14.57%; River & Mercantile hold 6.80%; Ruffer has 6.02%; Allianz Global hold 5.80%; Soros Fund Management hold 4.31%; and Unicorn Asset Management have 3.01%.
There are also a couple of large private holders – Adrian Williams with 6.78% and John Mullen with 3.85%. The latter may well be a Canadian lawyer and litigator whose business has a working relationship with Driver.
In total that means circa 71% of the equity is firm. One of those institutional holders, Allianz, actually used the market fall to increase its stake and I have to agree with that sentiment.
This is a very well organised group, with a global footprint. It is more than able to cope with any business conversion hassle in one geographic area by pushing hard in its other regions of operation.
The first-half results should be announced in about six weeks, when I would hope that a bullish report will help to get the shares bouncing back up from the current 59p to reach the 85p level at which they were trading last October/November.
To attain those peaks again may take some time but, trading at 11.8 times current year price earnings and just 10.2 times next years earnings, this would not be an expensive hold whilst the business bounces back.