Morgan Sindall FY profits fall but 'strong growth' expected in 2021
FTSE 250 construction and regeneration group Morgan Sindall reported a decline in full-year profit on Thursday as the Covid-19 crisis had an impact, but upgraded its expectations for 2021.
In the year to 31 December 2020, adjusted pre-tax profit fell 29% to £63.9m, with revenue down 1% to £3.03bn. Meanwhile, net cash increased to £333m from £193m a year earlier. Analysts had pencilled in adjusted pre-tax profit of between £61m and £65m.
The company said it was receiving no continuing support from government schemes, with all furlough amounts repaid and previously-deferred taxes fully up to date.
Morgan Sindall said it had a strong start to the year, building on the significant positive momentum carried through from 2019, with first quarter revenue up 17% on the prior year.
However, with the onset of the Covid-19 pandemic and subsequent lockdown restrictions across the UK in late March, trading across all divisions was significantly impacted, with revenue in the second quarter of the year down 23% on the prior year.
“With the gradual lifting of the initial lockdown restrictions in the first half and then through the subsequent tier system and further national lockdown restrictions in the second half, there was no further material impact on the group’s operations,” it said.
The group said additional costs incurred from site closures, lower productivity on sites, and from implementing new safety processes and procedures, dented profitability. Construction delays on many of the development schemes in the regeneration activities also had an impact.
The company was upbeat about the current year, saying it was "set for strong growth", with a high quality and growing order book and secured workload up 9% to £8.3bn. Results for the year are anticipated to be "materially ahead" of previous expectations and slightly ahead of 2019, it said.
Chief executive John Morgan said: "Despite the differing challenges each division faced, the Group has continued to make strategic and operational progress. Again, we have an improved cash position and have further strengthened our balance sheet, allowing us to make the right decisions and actions for the long-term benefit of the business.
"Our strategy remains the same, based on organic growth and operational improvement in markets geared towards future demand for affordable housing, urban regeneration and infrastructure and construction investment. We welcome the government's continued support for our activities and the recognition of the industry as a key driver for economic stability and recovery."
Morgan Sindall proposed a total dividend per share of 61p, up 190% from 2019. It said this reflects the strong balance sheet and the board’s confidence in future prospects.
At 1045 GMT, the shares were up 11.5% at 1,659.17p.
Broker Peel Hunt increased its December 2021 pre-tax profit estimate from £82.2m (against a wide consensus of £81.6-89.7m) to £92.0m, to give EPS of 159p, up from 140p.
"The shares are trading on 9.5x December 2021E and yield 4.3%, offering scope for re-rating given the momentum and sustainability of growth achieved via improving mix," it said, as it lifted its target price from 1,500p to 1,800p.
Peel Hunt rates the stock at 'buy'.