Sureserve Group – resilient trading update

A resilient trading update at Sureserve indicates higher final profits to end-September, writes Mark Watson-Mitchell. 

This morning’s post-year-end trading update from the £83m capitalised Sureserve Group (LON:SUR)points to increased profits yet again.

Furthermore, with the compliance and energy services group continuing to win more business, the new trading year should be even better.

Impressively, its order book is now £375m.

For the year to end-September 2020, I would now expect the company to see a small fall in revenues to around £195m (£212.1m), which would be totally understandable considering the impact that the lockdown had on the business.

However, I am looking for some £9.3m adjusted pre-tax profits (£8.3m), which is a healthy improvement. That would give earnings of around 4.5p per share.

For the year now underway, I believe that its greatly increased contract chasing team will help build the group’s order book even further.

Those new contracts generally have a three-year term, which provides a firming underbelly financially as the business progresses.

End-year net cash balances were around £3m, which together with a £25m revolving credit facility and a £5m overdraft, plus some HMRC VAT deferrals, gives the company the financial ability to make small bolt-on acquisitions in due course.

Give it a few more years of steady growth and I can foresee the business being valued at well over £150m, with revenues of £300m, its profits climbing to £20m and its shares trading at over 100p.

The shares have been as low as 27p over the last year and peaked last month at 57p.

They closed last night at 52p and, in my opinion, are moving up to trade around the 70p level, possibly before the annual results are published next January.

(Profile 14.01.20 @ 36p set a Target Price of 50p*)