TClarke – bringing a building into life pays off for this undervalued group

It is a fair bet that you may never have heard of TClarke (LON:CTO).

This company is over 130 years old and has offices and operating centres across the UK.

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

The business

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’.

The company within its M&E contracting business 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.

Bringing the building to life with power, services and systems

A building has a shell and a core that keep the weather out and keep it standing. It also has an internal fabric and decoration. Everything else in between – all the things that power it, heat it, light it and make it intelligent – are the group’s area of expertise.

Power is distributed and controlled.

Services – including heating, lighting, ventilation, water, waste and their networks and controls.

Data networks are made resilient and secure.

Internet services and coverage are delivered throughout the space.

Alarm, security and safety systems are integrated and controlled.

Building Management Systems are integrated along with all the IP addressable components on the system. Data and control of the building is brought together within advanced graphic user interfaces that make them easy to use.

Last week’s finals

Last Wednesday the group declared its final results for the year to end December 2021.

It reported a 41% increase in its revenues to £327.1m (£231.9m). an adjusted pre-tax profit up 53% at £7.8m (£5.1m), generating a 46% improvement in earnings of 14.99p per share (10.29p) easily covering a 10% increased dividend of 4.85p (4.4p) per share.

A split down of last year’s £327.1m revenue identifies that M&E contracting represented just over a third of the business at 35.7%, with infrastructure 24.1%, residential and hotels at nearly 17.1%, technologies 15.1%, and facilities management making up the 7.9% balance.

At the year end the group’s order book stood at a record £534m (£456m).

The group’s CEO, Mark Lawrence, stated that

“The business is in excellent shape having finished 2021 on a high and delivering the first year of our £500m revenue growth plan, winning a wide range of work across our chosen market sectors. This is clearly reflected in the strength of our order book which again has reached a new record high.”

He goes on to confidently declare that:

“Our order book will translate to record revenues; TClarke can offer our clients the widest possible solutions from a single contractor, utilising our resources so that they are assured we have the ability to deliver. That’s why we believe TClarke remains the contractor of choice for so many and we remain focused on maintaining our market leading position.

We start 2022 in excellent shape and well placed to deliver a strong future performance.”

The group’s growth strategy

The company’s growth strategy is focused on maintaining and developing its core markets whilst significantly expanding its data centre business.

It is also undertaking more large projects outside of London, such as those being delivered for a major financial institution by its Manchester business. As well it will be expanding both its healthcare offering and its energy efficient smart building solutions.

Through successful targeted tendering and operating efficiency it is focused upon its margin sustainability at 3% and better.

The Equity

There are some 43.92m shares in issue.

Large holders include Regent Gas Holdings (16.9%), Interactive Investor (7.83%), Heritage Capital Management (5.74%), Hargreaves Lansdown Stockbrokers (5.32%), Barclays Bank, Private Banking (4.60%), Walker Crips Investment Management (3.11%), TClarke Employee Share Ownership Trust (2.52%), Cavendish Asset Management (2.01%), Hargreaves Lansdown Asset Management (1.99%), and finally Chelverton Asset Management (1.37%).

Brokers View

Analyst Kevin Cammack, at the group’s brokers Cenkos Securities, estimates that for the current year a £410m turnover is possible, upon which the company could make £11m of adjusted pre-tax profits, worth 21.1p per share in earnings, and a 5.1p per share dividend.

For next year his estimates are for £500m turnover, £13.5m profits, 24.6p earnings and a 5.3p per share dividend.

Totally understandable why he rates the shares as a ‘buy’

My View

On the face of it this may look to be a boring company – but I would totally disagree with that impression.

It is a good solid business, only valued at around £74m, it is ungeared with some £7.3m net cash and that should increase to over £10m by this year-end.

Furthermore, it also has unused banking facilities of £25m.

In the last year the shares have been up to 186p, I see them going back up there again in 2022.

Its shares at 147p, looking for a current year yield of some 3.5%, and trading on only 6.9 times earnings – are a ‘no-brainer’.

(Profile 10.12.19 @ 120p set a Target Price of 165p*)

(Asterisks * denote that Target Prices have been achieved since Profile publication)