Our view: Hold
Share price: 2,035p (-9p)
"It's better to be the builder than the buyer in the current market," says Kier Group chief executive John Dodds.
He's right. The UK still suffers from a marked imbalance between supply and demand when it comes to housing, which means business continues to be rosy for companies like Kier.
The group's other businesses remain in robust health too. Kier Regional, the contracting side, achieved a record level of revenue in the first quarter. There is a decent private finance initiative (PFI) portfolio and a healthy supply of building maintenance work, for which the support services arm with be bidding.
If there is a downside to all this, it is that the market has woken up to it. The shares have performed exceptionally well over the last couple of years. It is worth remembering they were barely above 700p at the beginning of 2005. Yesterday, they closed at 2,035p.
Some of the surge in recent months can be accounted for by takeover froth in the sector, although the group's diversity - a source of strength from a financial perspective - makes a bid less likely than it might be for some rivals.
Nevertheless, trading on about 14 times expected earnings, the shares are not exactly cheap. However, given where Kier's peers are, they are not expensive either. The company is performing well and there is no reason to think that this will not continue in the short to medium term.
Kier was one of The Independent's 10 share tips for 2006. Those who bought as a result will be feeling pretty happy. There could be an argument for taking profits now, but while share price growth is unlikely to be spectacular going forward, the company's prospects remain excellent and the stock is one to hold.
Our view: Buy
Share price: 214.5p (+7.75p)
Mitie Group is one of Britain's true corporate success stories. Started as a small support services business 19 years ago, the company has developed to become one of the fastest growing and most profitable in its sector. Among its cleaning and security clients, it now boasts impressive names such as the Bank of England and the Tower of London, while it also runs maintenance contracts at the nuclear power plant Sellafield.
Publishing its interim results yesterday, the group proved it is continuing to grow profitably in spite of increased competition in the sector and subsequent squeeze on its margins. Its organic revenue growth was a better than expected 11.6 per cent for the half, well above the levels which its much bigger rival Rentokil Initial turned in.
Although some of the company's smaller businesses, such as catering, landscaping and pest control struggled during the period, the bigger divisions all performed well.
As well as delivering good organic growth, the company has also recently turned to the acquisition trail. Its £75m purchase of Rentokil's security division in March is now fully integrated and helped this arm of the company grow by some 233 per cent in the six months to the end of September.
Its chief executive Ian Stewart said yesterday that the company could still spend up to a further £500m on acquisitions - leaving plenty of room for further growth here if its existing businesses finally begin to feel the pressure.
Trading at 16 times next year's forecast earnings, the stock is not over-expensive, and given the management's impressive proven track record, we believe this stock can push higher still. Buy.
Our view: Hold
Share price: 174p (-0.5p)
RM, the education software provider, has received a mixed report card at the end of its year. The company has made good progress, winning contracts for the massive "Building Schools for the Future" project, but it will not see the financial benefits of that hard work until 2008 at the earliest. As a result, revenue declined slightly over the past year and it relied on cost cutting to boost profits. The company expects to spend another £4m bidding for BSF contracts next year. While it is confident it can grab more of that business, it remains reticent over its outlook.
However, a cautious approach should perhaps be commended in the wake of delays to the overhaul of the National Health Service's IT infrastructure which has had disastrous knock-on effects for suppliers like Accenture and iSoft. Earlier this year RM warned on profits due to delays to the BSF project. That knocked nearly 8 per cent off its share price and RM has now expressed frustration that it is competing with the BBC's free Jam service in the education software market.
RM shares sit on an undemanding rating of 13.6 times 2007 market expectations and a new deal with the financial software pro-vider Coda to develop an integrated package for schools will raise interest. However, RM is building for the future at this stage and until visibility improves it is difficult to get excited about its prospects. Hold.Reuse content