US Edition Carillion
370.7p +15.9
Questor says BUY
Earlier this year, Carillion started to scale back its UK construction business – with plans to reduce it by one third over the next three years. This was a prudent move.
The group is now looking to double revenue from its international business and grow its support services operation in Britain as public sector clients outsource more work.
Canada is one interesting source of opportunity next year. For example, Ontario is developing a new 10-year plan for infrastructure – with expenditure expected to be more than C$50bn (£31bn). There are also lots of bidding opportunities in Middle Eastern countries such as Qatar.
No new contracts were announced, but the order book in the second half so far has grown by more than £1bn – and the pipeline continues to grow. Much of this has come from scope increases on existing contracts.
Carillion also said it expected an improvement in the company's overall operating margin in 2010, which was 3.8pc in 2009, with margins in support services on track to achieve 5pc.
The group is also expected to be in a net cash position by the end of 2010, with analysts pencilling about £70m.
The shares are trading on a December 2010 earnings multiple of 9.3 times, falling to 9 next year. They are supported by a worthwhile yield of 4.2pc.
Questor first tipped Carillion on October 22 last year at 310.3p and its shares are up 19pc since then, compared with a FTSE 100 up 12pc. Although the company itself accepted that market conditions were "difficult", especially in the UK, it still expected to see "progress" (i.e. growth) next year. Questor says buy.