Interactive Investor

Why Galliford Try could be worth 25% more than this

Despite hitting a new high today, the shares are still ‘excellent value’ according to one analyst. Our City expert runs through today’s results and improved dividend policy.

20th September 2023 15:55

by Graeme Evans from interactive investor

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Galliford Try logo against stock market graph 600

Galliford Try Holdings (LSE:GFRD) shares today hit a post-2020 high as upgraded guidance and a big dividend hike fuelled the momentum seen since a switch out of housebuilding.

The FTSE All-Share construction and infrastructure specialist is now focused on health, education, defence, custodial, highways and environment projects, with 87% of its £3.7 billion order book from clients in the regulated and public sectors.

It offloaded its Linden Homes and Partnerships operations to Vistry Group (LSE:VTY) at the start of 2020, a move that created a newly listed stock under the Galliford Try Holdings name.

The shares today set their highest level since the overhaul at 220p, aided by the announcement of a new annual dividend policy of 1.8 times earnings cover.

This means shareholders can expect the 8 December payment of 7.5p a share, leaving the total for the financial year 31% higher at 10.5p. They are also in line to get a previously announced special dividend of 12p a share, which is due for distribution on 27 October.

Galliford said the improved dividend policy reflected its confidence in the outlook, as well as the low-risk nature of its PPP (Public-private partnerships) asset portfolio. On top of the special dividend, Galliford is about 90% through plans to buy back £15 million of its shares.

The optimism follows strong results for the year to 30 June, with a 12.6% rise in revenues to £1.4 billion and underlying profits 23% higher at £23.4 million.

Demand from the water industry helped Infrastructure revenues up by 34%, while the Building division rose 1% despite being held back by some client procurement delays in response to rising inflation.

Significant contract wins have included a £95 million new custodial facility at HMP Rye Hill and May’s £387 million of refurbishment and new-build work at RAF bases. The operating margin across both divisions stood at 2.4%, in line with a target to reach 3% by 2026.

Chief executive Bill Hocking said momentum in the business has carried into the new financial year, prompting it to forecast 2024 underlying profits at the upper end of the City’s £24 million-£28 million range.

He said: “We are doing what we said we would do, consistently delivering increased revenue and profit, supported by our great people, a strong balance sheet, excellent order book and good supply chain and client relationships.”

Peel Hunt said shares have responded well to the pace of progress but that they were still “excellent value” on a multiple of 10 times projected earnings. It has a price target of 280p.

Counterparts at Liberum are at 270p, noting that its sum-of-the parts assessment values Galliford’s investments at 42p a share and 2024’s average net cash at 154p.

The City firm concludes: “The market is attributing no value to the Building and Infrastructure businesses, which is unjustified given management has returned the business to profitability while implementing a strict low-risk strategy.”

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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