Galliford Try Holdings – debt-free and increasingly profitable

Old market hands like me would consider this group to be one of the UK’s house builders, but we would be wrong. It used to be – but is no longer.

Today

Having exited its house building and regeneration businesses in early 2020, Galliford Try Holdings (LON:GFRD) is now a leading UK construction firm employing some 2,700 people across the country.

Today the focus of its work, for its public and private sector clients, is upon providing vital buildings, highways and the environmental infrastructure.

It concentrates upon winning business in the health, education, defence, highways and the environment sectors.

It operates under two main banners – as Galliford Try and as Morrison Construction – no doubt we have all seen these companies’ site hoardings spread across the UK.

Its order book is very healthy

In October last year the group’s order book totalled some £3.3bn. That figure was made up on its building side – worth £1.92bn and split as follows: Education £530m; Defence and custodial £389m; Health £300m; Facilities Management £403m; and Commercial £289m.

On the infrastructure side the group’s order book stood at £1.35bn: Highways £512m; and Environment £836m.
Overall, that worked out at 91% of its business from the public and regulated sectors, while the private sector made up the balance 9%.

Some 87% of the group’s order book is in ‘frameworks’.

Trading Update

A couple of weeks ago the group announced an Update on its trading in the interim period to end December last year.
It stated that the group was performing well.

The average month-end cash balance has increased in the first half from around £164m to £180m, while its cash balance was a very healthy £210m.

In that period its order book was increased to £3.4bn as at end December.

Its equity is institutionally backed

There are some 111m shares in issue. Large holders include Premier Miton Group (12.13%), Standard Life Aberdeen (5.36%), Aberforth Partners (5.27%), JO Hambro Capital Management (5.17%), Threadneedle Asset Management (5.16%), Dimensional Fund Advisors (4.97%), Brewin Dolphin (4.66%), Hargreaves Lansdown Stockbrokers (3.81%) and Jupiter Asset Management (2.61%).

Broker’s View

Analyst Joe Brent at Liberum Capital reckons that the market has not yet factored in the successful turnaround for the group.

He considers that the strong pipeline in the building division will add to the group’s margin progress. Brent rates the shares as a ‘buy’ having set a price objective of 270p a share.

Fund Manager’s View

A couple of weeks ago Thomas Moore, the Senior Investment Director at Aberdeen Standard Investments, was reported to be buying more shares in the group for his fund.

“We see growing evidence that Galliford Try has turned the corner in its finances, there is growing evidence of its success in generating cash and growing earnings.”

Moore is also said to believe that the company looks cheap, especially given the amount of cash sitting on its balance sheet.

Market Estimates

Consensus estimates for the group’s performance over the 2022 to 2024 years are bullish. Revenues of £1.22bn (£1.12bn) for 2022, £1.29bn for the year to end June 2023 and £1.36bn for 2024.

In the same period pre-tax profits are expected to rise from £11.4m in 2021, to £16.5m this year, £20.3m in 2023, then £23.7m in 2024.

Earnings per share could go from 9.5p last year, to 12.4p this year, 14.7p next and 17.1p in the 2024 year.

Estimates suggest that dividends will rise from 5p last year, to 6p this year, 7p next year and then up to 8p per share in 2024 – meaning that the attractive yield will be more than twice covered by earnings.

My View

The group has a solid balance sheet and exciting growth prospects.

It is well-capitalised and is debt-free.

With some 52 centres, it offers a national coverage with local delivery within the UK. It has an excellent position for its frameworks in the public and regulated sectors.

Furthermore, it has strong, long-term, collaborative relationships with its clients leading to repeat business.

The group’s shares, which were just 125p last June have subsequently been up to 213p.

Now at just 178p they value this group at £197.5m – that is far too cheap for such steady growth potential.

I now set a Target Price of 220p, looking forward to its half-time results to end December, due to be announced in a month’s time (3 March), that could boost the upwards progression of the group’s shares.