Investment Column: Galliford looks to set to build on its gains

Iomart; Trifast


Our view: Buy

Share price: 463.5p (+1.5p)

The good times keep on rolling at Galliford Try, the housebuilder and construction company.

The 103-year-old firm yesterday boasted that it had been selected as a partner on three affordable housing contracts worth a total of £584m in London, the South-east and eastern regions of England.

Of these contracts, the biggest at £400m is the renewed agreement between 10 partners and the housing association L&Q which involves the building of 7,000 new homes across London and southern England.

The news helped to push Galliford Try's shares above a 12-month high, continuing their strong rally since December. That said, they remain a long way off the dizzy heights of 710p hit in September 2009, when the housing and construction markets were emerging from the doldrums.

In the same month, Galliford Try unveiled a rights issue that raised £119m to give it a war chest to acquire land at knock-down prices, a strategy that has served it well.

The contract wins released yesterday follow Galliford Try – which generates nearly two-thirds of its revenues from construction projects – saying last month that its profits would be "significantly ahead" of market expectations as it unveiled interim results from 1 January to 4 May.

The company was particularly bullish about its house building division, which is largely focused on London and the South-east and now accounts for about half of group profits.

Indeed, Galliford Try said the housing market had "exceeded our expectations throughout the spring selling season" with a sharp jump in sales reserved to £532m over the four month period.

Its construction arm, which covers projects from schools to hotels, grew less strongly but still delivered a 3 per cent rise in its order book to £1.8bn.

The company also boasted it had been chosen as one of four partners on the £790m Forth Road Crossing project. And in yet more good news, Galliford Try also announced in May that it had secured new banking facilities of £325m until 2015.

The fact that its shares trade on multiples of around 9 times forward earnings only serves to seal the bull case, in our view.

Iomart

Our view: Buy

Share price: 88.5p (+2.38p)

Iomart admits that the terms "cloud computing" and "cloud-based services" are the "buzzwords du jour" and criticised many companies in the space for trying to sell the hype without the systems to back it up.

In fact, cloud computing can cover a range of services, but in general terms, it means putting a client's data on third party servers with the information accessible through the internet. This takes out the costs of running data centres and much of the IT support for the customer.

Iomart believes it has the kit to walk the walk, and yesterday's full-year results backed that up with a seven-fold rise in pre-tax profits. The chief executive, Angus MacSween, added that the company was in good shape for the future as it had continued to invest in its data centres and staff.

"We are in a market that is growing and that is here to stay and we fully expect to participate strongly in that growth," he added.

To add to the allure, cash generation is good, and Iomart's shares trade on multiples of about 16 times forward earnings, making them well worthwhile given the growth prospects.

Trifast

Our view: Buy

Share price: 47.75p (-0.25p)

There was much in the way of doom and gloom around manufacturing yesterday after new figures pointed to a slowdown in the sector's pace of growth in the UK. But on the markets there was some good news.

Trifast, which manufactures and distributes industrial fastenings and other components, issued better than expected full-year results.

And besides the headline numbers - gross margins improved to 25.2 per cent, while margins on earnings before interest, tax, depreciation and amortisation were up to 5 per cent – there were also some positive hints on the dividend. No payout was proposed, but the company hopes to "address" the yield this year, which augurs well, in our view.

In fact, we would wade in now, before the company makes a firmer announcement on the matter. A positive decision could drive the shares higher as income investors move in.

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