Get in on the ground floor

No Pain, No Gain: Our Man's Portfolio

WHEN A share gets left behind there is usually a good reason. In the case of Galliford, the building group, it seems to be profit downgradings, which followed interim figures in February. Half-time profits rose 44 per cent to pounds 1.1m. The stock market had expected an even better performance and year's forecasts were promptly pulled back to about pounds 4.3m against the pounds 3.8m achieved last time.

The shares fell to 16p; they have since recovered to 20p. In the company's halcyon days, in the late 1980s, the price nudged 100p. Since then Galliford has toiled with limited impact. In 1994 it plunged deep into the red, slowly dragging itself back to a reasonable level of financial prosperity.

Its comeback has masked a revamp that has significantly altered the group's direction. Its new approach, coupled with the revival in the house- building market and the low rating accorded the shares, make it an ideal candidate for my portfolio.

The firm's house-building operations are concentrated in and around Lincolnshire and the South-west of England. Perhaps they are not the most bullish building environments. But as the latest mortgage figures show, the housing market is recovering dramatically and Galliford's involvement should enjoy improving returns. Shrewdly, it is gently pushing its housing operations more up- market. There is also a rewarding role in social housing contracting, which now represents some 16 per cent of its overall construction activity.

Indeed, it is the group's construction side that could represent the hidden treasure which could change Galliford's stock market standing. Although the division's profits will remain under pressure for the rest of this year, it is on this front that the group is being likened to such high-flying stock market stars as WS Atkins and Jarvis.

Such comparisons may be premature. But I think Galliford could have the potential to enjoy the sort of rewards that have flowed through to the much more highly rated performers in the field.

There are a number of intriguing projects. It appears to have won a pounds 70m schools contract at Birmingham, beating off bids from 27 other contenders, under the Private Finance Initiative (PFI) scheme. The deal covers the building and refurbishment of 10 schools and providing facilities management, including supplying caretakers and dinner ladies plus other staff, although not teachers, for the next 30 years. The contract was won after extensive consultations with teachers and unions. Galliford hopes to repeat its Brummie schools partnership success elsewhere.

Indeed, the group has already achieved another deal in Britain's second city - a joint venture for the pounds 113m Millennium Point project, which embraces the usual round of facilities featured in such millennium developments.

The group is also pinning its hopes on transport operations. It has just increased its stake in Rapid Transport International, preparing to develop a rail-bus network at Northampton, to 50 per cent. Work is due to start in the second half of this year. The system will involve a gas-powered, integrated bus and light rail service. Again, Galliford has a 30-year maintenance contract.

Other similar schemes are being negotiated, although local authorities are likely to wait to see how the Northampton scheme evolves before committing themselves. The transport division is not going to make a profit for some time. But its future potential is clearly considerable.

Partnership deals, PFI or others, are the construction name of the game these days, and Galliford seems to be working to consolidate its position in this area.

Profits for the year ending June will not create a great deal of excitement. But from then on, things should improve. And, of course, the art of investment is latching on to a share before any new attractions become apparent. Profits next year should be near to pounds 6m, which would underline the present low rating.

Unfortunately, the shares suffer the dubious distinction of a dividend yield - 5.5 per cent - coming out at a similar figure to the p/e ratio.

For a company that is not heavily borrowed and has a realistic land bank, plus its intriguing school and transport division prospects, Galliford deserves better.

Start your day with The Independent, sign up for daily news emails
Hillary Clinton comments on viral Humans of New York photo of gay teenager
Arts and Entertainment
The gang rape scene in the Royal Opera’s production of Gioachino Rossini’s Guillaume Tell has caused huge controversy
wimbledonScot will face Ivo Karlovic next
Life and Style
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Assistant / Buyer

£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

Day In a Page

Is this the future of flying: battery-powered planes made of plastic, and without flight decks?

Is this the future of flying?

Battery-powered planes made of plastic, and without flight decks
Isis are barbarians – but the Caliphate is a dream at the heart of all Muslim traditions

Isis are barbarians

but the Caliphate is an ancient Muslim ideal
The Brink's-Mat curse strikes again: three tons of stolen gold that brought only grief

Curse of Brink's Mat strikes again

Death of John 'Goldfinger' Palmer the latest killing related to 1983 heist
Greece debt crisis: 'The ministers talk to us about miracles' – why Greeks are cynical ahead of the bailout referendum

'The ministers talk to us about miracles'

Why Greeks are cynical ahead of the bailout referendum
Call of the wild: How science is learning to decode the way animals communicate

Call of the wild

How science is learning to decode the way animals communicate
Greece debt crisis: What happened to democracy when it’s a case of 'Vote Yes or else'?

'The economic collapse has happened. What is at risk now is democracy...'

If it doesn’t work in Europe, how is it supposed to work in India or the Middle East, asks Robert Fisk
The science of swearing: What lies behind the use of four-letter words?

The science of swearing

What lies behind the use of four-letter words?
The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

The Real Stories of Migrant Britain

Clive fled from Zimbabwe - now it won’t have him back
Africa on the menu: Three foodie friends want to popularise dishes from the continent

Africa on the menu

Three foodie friends want to popularise dishes from the hot new continent
Donna Karan is stepping down after 30 years - so who will fill the DKNY creator's boots?

Who will fill Donna Karan's boots?

The designer is stepping down as Chief Designer of DKNY after 30 years. Alexander Fury looks back at the career of 'America's Chanel'
10 best statement lightbulbs

10 best statement lightbulbs

Dare to bare with some out-of-the-ordinary illumination
Wimbledon 2015: Heather Watson - 'I had Serena's poster on my wall – now I'm playing her'

Heather Watson: 'I had Serena's poster on my wall – now I'm playing her'

Briton pumped up for dream meeting with world No 1
Wimbledon 2015: Nick Bollettieri - It's time for big John Isner to produce the goods to go with his thumping serve

Nick Bollettieri's Wimbledon Files

It's time for big John Isner to produce the goods to go with his thumping serve
Dustin Brown: Who is the tennis player who knocked Rafael Nadal out of Wimbeldon 2015?

Dustin Brown

Who is the German player that knocked Nadal out of Wimbeldon 2015?
Ashes 2015: Damien Martyn - 'England are fired up again, just like in 2005...'

Damien Martyn: 'England are fired up again, just like in 2005...'

Australian veteran of that Ashes series, believes the hosts' may become unstoppable if they win the first Test