Investment Column: Get in on ground floor at Morgan Sindall

Marshalls; Zotefoams


Our view: Buy

Share price: 659p (+18p)

We've been long-term holders of the construction group Morgan Sindall, which issued an optimistic trading statement yesterday suggesting that it could be the time to upgrade our view.

The group operates across a range of sectors including infrastructure, social housing, fitting out completed developments and project management. It also has an investment arm that provides funding and expertise for public projects.

Anything with the words "public sector" attached to it generally causes investors to run. And the housing market continues to be constrained by banks' unwillingness to lend. But the points in Morgan Sindall's favour outweigh any negatives.

The Government has indicated a desire to maintain spending on infrastructure, and its £200bn, five-year plan compares with a spend of £150bn previously. Morgan Sindall should be able to grab a slice of that work, but at the same time management have sensibly reduced the proportion of revenues provided by the state to around 50 per cent from over 60.

There are also some signs of life in the affordable housing sector – particularly when it comes to private sales. Although a lack of finance is stillconstraining volumes, lenders are beginning to show some movement and margins have touched up.

The company's overall pipeline is strong – work includes Crossrail – while Morgan Sindall said yesterday that it was in the frame for parts of the £1.2bn facelift of Gatwick Airport. Meanwhile, its fitting-out business should pick up as recently commissioned projects near completion.

Despite the positives, the company sits on a very undemanding valuation of just 7.7 times this year's forecast earnings, falling to 7.1 times next year. The prospective yield is a tasty 6.6 per cent, and the dividend is two times covered by earnings. Management say they believe that 2011 will be their worst year, after which things should steadily pick up. If that is the case, these shares could look like a real bargain in 12 months' time. Buy.



Marshalls

Our view: buy

Share price: 110.5p (+2.25p)

It is rare to find a company that loves to be walked all over, but Marshalls is certainly one. The company laid the flooring at the O2 Arena in London's Docklands and has also paved Trafalgar Square. It is currently working on projects at the 2012 Olympic Games sites, including installing security bollards strong enough to halt armoured cars. But Marshalls is not all vast infrastructure projects, which make up about 60 per cent of sales. It also has a tidy business of domestic landscaping, including paving and garden patios.

The Yorkshire-based business released a trading update yesterday, saying revenues for the six months to the end of June were 9 per cent higher than a year ago, at £177m, despite a tough trading environment. It is closing unnecessary sites, with one on the south coast of England sold in June for £5m, as well as surplus garages and greenhouse-making operations.

Management said the outlook for its public sector and commercial markets remain "mildly positive" but the second-half comparatives would be tougher. Yet Rachael Waring, an analyst at Panmure Gordon, believes the company is in a good position to benefit from a market recovery, calling it a "high-quality, well-invested business".

Numis has the stock on a price of 20.3 times estimated 2012 earnings, with a yield of 4.8 per cent. This stock has good potential. Buy.

Zotefoams

Our view: hold

Share price: 148p (-3.5p)

High-performance foam manufacturing may not be the world's most exciting industry, but Zotefoams' products can be found in everything from prosthetic limbs to sporting gear such as cricket pads or ice hockey masks.

Yesterday, the Croydon-based firm revealed that its like-for-like sales were up by 10 per cent year on year. Adrian Kearsey, of Evolution Securities, said the news showed it was "benefiting from the rebound in economic activity" There was further positive news from its statement that the integration of MuCell – which it bought in March – is now complete.

Still, the company, which is listed on the fledgling index, warned over the effect of high raw material prices on its margins, and there were also no upgrades to estimates, as some may have been hoping for.

The dividend yield nevertheless justifies holding on to the stock, but that's as far as it goes, so hold.

News
In 2006, Pluto was reclassified as a 'dwarf planet'
scienceBut will it be reinstated?
News
Jennifer Lawrence at the Vanity Fair Academy Awards party in February 2014
people12 undisclosed female victims are seeking $100m in damages
Arts and Entertainment
Adam Levine plays a butcher who obsessively stalks a woman in Maroon 5's 'Animals' music video
music'Animals' video 'promotes sexual violence against women'
News
people Biographer says cinema’s enduring sex symbol led a secret troubled life
PROMOTED VIDEO
Voices
voicesI like surprises - that's why I'm bringing them back to politics, writes Nigel Farage
News
Bear and hare woodland scene from John Lewis Christmas advert
newsRetailer breaks with tradition, selling real festive fir trees online for the first time
Arts and Entertainment
Anthony Horowitz will write the next 007 novel
booksAnthony Horowitz to write new instalment in spy series for 2015
News
British actor Idris Elba is also a DJ and rapper who played Ibiza last summer
people
News
people

Kirstie Allsopp has waded into the female fertility debate again

Sport
Kicking on: Nathaniel Clyne is relishing the challenge of the Premier League after moving from Crystal Palace
footballSurprises include a first ever call-up for one Southampton star
News
ebooksAn unforgettable anthology of contemporary reportage
Voices
4 May 2013: The sun rises over Tower Bridge in London. Temperatures across the UK could be higher than several European holiday destinations by Monday, including parts of Italy and France (Andy Hepburn/PA)
voices
News
The moon observed in visible light, topography and the GRAIL gravity gradients
science

...and it wasn't caused by an asteroid crash, as first thought

News
Researchers say a diet of fatty foods could impede smell abilities
scienceMeasuring the sense may predict a person's lifespan
News
newsGlobal index has ranked the quality of life for OAPs - but the UK didn't even make it into the top 10
Extras
indybest
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Trust Accountant - Kent

NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...

Graduate Recruitment Consultant - 2013/14 Grads - No Exp Needed

£18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...

Law Costs

Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...

Day In a Page

Italian couples fake UK divorce scam on an ‘industrial scale’

Welcome to Maidenhead, the divorce capital of... Italy

A look at the the legal tourists who exploited our liberal dissolution rules
Tom and Jerry cartoons now carry a 'racial prejudice' warning on Amazon

Tom and Jerry cartoons now carry a 'racial prejudice' warning on Amazon

The vintage series has often been criticised for racial stereotyping
An app for the amorous: Could Good2Go end disputes about sexual consent - without being a passion-killer?

An app for the amorous

Could Good2Go end disputes about sexual consent - without being a passion-killer?
Llansanffraid is now Llansantffraid. Welsh town changes its name, but can you spot the difference?

Llansanffraid is now Llansantffraid

Welsh town changes its name, but can you spot the difference?
Charlotte Riley: At the peak of her powers

Charlotte Riley: At the peak of her powers

After a few early missteps with Chekhov, her acting career has taken her to Hollywood. Next up is a role in the BBC’s gangster drama ‘Peaky Blinders’
She's having a laugh: Britain's female comedians have never had it so good

She's having a laugh

Britain's female comedians have never had it so good, says stand-up Natalie Haynes
Sistine Chapel to ‘sing’ with new LED lights designed to bring Michelangelo’s masterpiece out of the shadows

Let there be light

Sistine Chapel to ‘sing’ with new LEDs designed to bring Michelangelo’s masterpiece out of the shadows
Great British Bake Off, semi-final, review: Richard remains the baker to beat

Tensions rise in Bake Off's pastry week

Richard remains the baker to beat as Chetna begins to flake
Paris Fashion Week, spring/summer 2015: Time travel fashion at Louis Vuitton in Paris

A look to the future

It's time travel fashion at Louis Vuitton in Paris
The 10 best bedspreads

The 10 best bedspreads

Before you up the tog count on your duvet, add an extra layer and a room-changing piece to your bed this autumn
Arsenal vs Galatasaray: Five things we learnt from the Emirates

Arsenal vs Galatasaray

Five things we learnt from the Gunners' Champions League victory at the Emirates
Stuart Lancaster’s long-term deal makes sense – a rarity for a decision taken by the RFU

Lancaster’s long-term deal makes sense – a rarity for a decision taken by the RFU

This deal gives England a head-start to prepare for 2019 World Cup, says Chris Hewett
Ebola outbreak: The children orphaned by the virus – then rejected by surviving relatives over fear of infection

The children orphaned by Ebola...

... then rejected by surviving relatives over fear of infection
Pride: Are censors pandering to homophobia?

Are censors pandering to homophobia?

US film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
The magic of roundabouts

Lords of the rings

Just who are the Roundabout Appreciation Society?