Costain, Kier, Galliford Try (previously Carillion) etc and the government

[johnhemming]

On the reasonable assumption that the government may start spending a bit more on infrastructure then it is worth looking at which contractors might benefit from this even if not directly, but as a result of an expansion in that area. As I see it (with Carillion now gone)

There are
Costain (COST)
Kier (KIER)
Galliford Try (GFRD) and
Balfour Beatty

The latter appear to be trundling along with a PE of 15 ish.
Kier seem to be still in a crisis state and I am not sure that the possibility of additional government contracts paying say 2 years down the line will make much of a difference today.

That leaves Costain (who dropped a bit further on Friday) who have been suffering and Galliford Try (who picked up a bit on Friday) as options.

I wonder how people see this.

Others might be Morgan Sindall (MGNS) 10.75 , Keller Group (KLR) (loss-18), Henry Boot (BOOT) 11.26, MJ Gleeson (GLE) 14.24, T Clarke (CTO) 8.6

[Dod101]

I would not hold the big contractors. They only seem to be able to stagger from crisis to crisis. There was a thread on Costain this last week or so and no one uncovered anything positive on them. Winning contracts does not in itself make money unfortunately.

I do though hold Henry Boot and M J Gleeson, both of which picked up a bit on Friday. They are both conservatively run, have a great record, and a founding family shareholding, all of which I like. Gleeson is unlikely to benefit from infrastructure spending as they are a low cost housebuilder, but Henry Boot may, although given their style, I think they would only participate at their price.

Dod

[simoan]

I would not hold the big contractors. They only seem to be able to stagger from crisis to crisis. There was a thread on Costain this last week or so and no one uncovered anything positive on them. Winning contracts does not in itself make money unfortunately.

I do though hold Henry Boot and M J Gleeson, both of which picked up a bit on Friday. They are both conservatively run, have a great record, and a founding family shareholding, all of which I like. Gleeson is unlikely to benefit from infrastructure spending as they are a low cost housebuilder, but Henry Boot may, although given their style, I think they would only participate at their price.

Dod

I agree with Dod. I would avoid the big contractors because they generally have poor balance sheets and low operating margins, whilst relying on lumpy contract revenues. That's a potent recipe for disaster. Understanding their accounts is problematic and best left to trained accountants only because revenue recognition of ongoing projects is so complicated.

There are better ways of playing the infrastructure theme IMHO and I would stick to picks and shovels type companies as they generally have higher margins (although still on the low side). My own pick would be Severfield because there are not many large infrastructure projects that don't use a lot of steel these days. I also quite like Keller which is a share I've held on and off for many years.

All the best, Si

[AsleepInYorkshire]

On the reasonable assumption that the government may start spending a bit more on infrastructure then it is worth looking at which contractors might benefit from this even if not directly, but as a result of an expansion in that area. As I see it (with Carillion now gone)

There are
Costain (COST)
Kier (KIER)
Galliford Try (GFRD) and
Balfour Beatty

The latter appear to be trundling along with a PE of 15 ish.
Kier seem to be still in a crisis state and I am not sure that the possibility of additional government contracts paying say 2 years down the line will make much of a difference today.

That leaves Costain (who dropped a bit further on Friday) who have been suffering and Galliford Try (who picked up a bit on Friday) as options.

I wonder how people see this.

Others might be Morgan Sindall (MGNS) 10.75 , Keller Group (KLR) (loss-18), Henry Boot (BOOT) 11.26, MJ Gleeson (GLE) 14.24, T Clarke (CTO) 8.6

If I was sniffing in this area I'd focus upon Galliford and Balfour's projections.

Galliford should be cash positive after the sale of its housing arm and Balfour should be coming out of what has been a turn around period.

AiYn'U

[TheMotorcycleBoy]

On the reasonable assumption that the government may start spending a bit more on infrastructure then it is worth looking at which contractors might benefit from this even if not directly, but as a result of an expansion in that area. As I see it (with Carillion now gone)

There are
Costain (COST)
Kier (KIER)
Galliford Try (GFRD) and
Balfour Beatty

The latter appear to be trundling along with a PE of 15 ish.
Kier seem to be still in a crisis state and I am not sure that the possibility of additional government contracts paying say 2 years down the line will make much of a difference today.

That leaves Costain (who dropped a bit further on Friday) who have been suffering and Galliford Try (who picked up a bit on Friday) as options.

I wonder how people see this.

Others might be Morgan Sindall (MGNS) 10.75 , Keller Group (KLR) (loss-18), Henry Boot (BOOT) 11.26, MJ Gleeson (GLE) 14.24, T Clarke (CTO) 8.6

Perhaps you would be better off looking at the suppliers of those contractors. You've arguably missed the boat for some (e.g. Marshalls MSLH which I hold ) which has seen a recent almost doubling of it's share price in the last year or so.

Like Simon said the contractors themselves aren't always good investments.

I drive past/through/have suffered one of our recent infrastructure improvements: A14 upgrade Brampton to Cambridge. I look at all the machinery there, investments often sitting there waiting for next load of muck, loads of guys (and the odd girl) in their yellow overalls....getting paid. Then I see the MSLHs pallots, blocks and bollards + the occasionally Marshalls lorry out delivering. The bulk suppliers are the peeps raking in the £££, not the contractor firms.

Just my opinion, Matt

[dealtn]

The only two I am invested in, and even interested in, are Severfield (SFR) and T Clarke (CTO) both of which are small and have their niches and able to command higher than typical margins. Happy with their ROCE despite low margins. I might be tempted to exit either or both should the share prices continue their rise due to the cyclical nature of their industries, but suspect that might be some time off yet.

None of the large caps are attractive enough for consideration for my purposes at the moment.

[monabri]

As far as GFRD/KIER/COST...they are a definite no-no for me.

GFRD - I held shares in GFRD (once) but they seemed to lurch from one story of woe to another - I've commented on this previously (on several occasions !). I eventually sold with a very small loss.

KIER - no comment - a tale of woe and if it doesn't go the same way as Carillion then I will be surprised.

COST - Commented on COST recently.

The low/no margins make these companies "no go" for me. Sure, they create jobs and build things but they seem to be an extension of the Government where the CEO/CFO make a packet, keeping the shareholders temporarily happy with daftly high dividends...until they meet a snag on one or, heaven forbid, a couple of projects and then they want money in the form of a rights issue, the dividend is cut/cancelled and the share price takes a roughing up.

BBY - 5% gross margin, 0.7% operating margin...


I know nothing about SFR/CTO but I prefer SFR's "numbers".,...but GLE seems a better bet in terms of margins.

[johnhemming]

GRFD are a bit complex because of the sale of Linden Homes. However, I would think there should be some value in heavy construction. Its just a matter of what can be found.

[SwissPaul]

My thoughts are also on supliers and I hold Breedon (BREE) who are suppliers of cement and tarmac to infrastructure projects. Starting to pick up again

[SwissPaul]

My thoughts are also on supliers and I hold Breedon (BREE) who are suppliers of cement and tarmac to infrastructure projects. Starting to pick up again

[Crazbe7]

I would only invest in major contractors if you believe we are the bottom of the construction cycle.

Too much uncertainty on HS2/Heathrow to be confident that a significant workload available for major contractors - rail/roads very much covered by frameworks. An agreement to build HS2 would lift Costain/Kier and possibly Balfour Beatty's share price but significant downside if delayed/canned.

I agree that suppliers the way to go and then possibly into major contractors if you want to take that risk when a pipeline of opportunities is clear.

I work in this sector and will only continue paying into my Company share save scheme - I have no intention of investing further in this sector with individual company shares. However, I will continue to invest in Infrastructure ITs.

Crazbe7

[johnhemming]

It is quite possible that construction spending will go up. That is a reasonable hypothesis given that the government has said this. Galliford is quite complex to work out because of the ongoing deal with Bovis/Linden Homes. However, I have concluded to invest in Galliford and Costain. Costain seems to have quite a solid balance sheet. Costain has taken a price hit more recently, but I don't think that devalues the business as a whole.