Investment Column: A lot of fuss about steady Morgan Sindall
WSP Group; CustomVis
Thursday 02 July 2009
Our view: Hold
Share price: 667p (-24p)
Given the bland nature of yesterday's trading update from Morgan Sindall, the construction group that specialises in public-sector projects, it was surprising to see such a reaction from the analysts.
"Buy" insisted those at the house broker, Royal Bank of Scotland, who lavished praise on the company, saying that the "long-term valuation [is] enormously attractive". Poppycock, argued the watchers at Panmure Gordon, who reckon that recent increases in the share price, coupled with the fact that the order book looks a bit less impressive than it did a few months ago and increasing pressure in some markets, means that punters should take profits and sell.
In truth both sets of analysis are probably a little wide of the mark. The group trades on a forward price-earnings ratio of 7.8 times compared to a sector average of eight times, which somewhat undermines the argument that the stock looks "enormously attractive".
Likewise, offering a dividend yield of 6 per cent, and with the company holding a decent amount of cash, we cannot really see the justification in jettisoning the shares either. The group has continued to win contracts in recent months and remains a strong pick within the industry, even if the sector as a whole may suffer in the coming months from cuts in public spending. Hold.
Our view: Hold for now
Share price: 216p (-4p)
Chris Cole, chief executive of the construction and engineering consultancy WSP, says he wishes he knew why the company's shares trade at a discount to the rest of the sector. No doubt, so do the shareholders. A bevy of analysts said that the group is doing well yesterday after WSP issued a steady-as-she-goes trading statement. Yes, the construction industry, especially in the private sector, is struggling, but WSP is well diversified and has exposure to safer Scandinavian markets.
"The shares trade on a December 2010 price-earnings ratio of five times, (versus our consultancy peer group average of 7.6 times) and yield 6.8 per cent (versus our peer average 3.8 per cent)," say those at Arbuthnot.
It is all very well for the analysts to say where the shares should trade on a price-earnings basis (incidentally, the Arbuthnot experts say 300p), and while it is cute that Mr Cole says he cannot understand why the shares are not given the same rating as others in the sector, the fact is that investors in WSP are missing out.
The investment case is that the group has its fingers in several geographies and its private and public mix is also defensive relative to the sector.
We would have concerns, however, that the hitherto resilient public sector is likely to have a tough time in the coming years as governments cut back on spending having run up massive amounts of debt in recent months de-credit crunching.
WSP is performing well operationally and has positioned itself well in anticipation for tougher times ahead. The group is probably our pick in the sector, especially given the yield, and for that reason we would hold on to the stock. Any serious worsening of economic conditions in the coming few months could make us think again, however. Hold for now.
Our view: Hold
Share price: 1.73p (+0.1p)
The one thing investors need in these unpredictable markets is visibility. Ironically enough, CustomVis, an AIM-listed group that develops and manufactures laser systems that are used in eye surgery, lacks this vital ingredient.
At first glance, the group is doing well. In its trading update yesterday, the company detailed a couple of new sales to clients in France and Iraq, which has helped the chief executive, Paul van Saarloos, to declare that full-year revenues will be ahead of previous estimates, sending the shares up 6 per cent.
All good so far, and certainly, judging by the steady climb in the share price over recent months, there are those that reckon the group is a solid punt. Mr van Saarloos reckons the group will be worth a lot more in the next three to five years, although we have never met a boss that doesn't.
Of course, there is a but. The group is a week away from an extraordinary general meeting at which three ex-directors, who own 13 per cent of the stock, are seeking to replace Mr van Saarloos and his colleagues.
We would not touch it with a barge pole until then, but if Monday's meeting ends without too much blood being spilt, CustomVis might be worth a punt. Hold.
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