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CN Briefing: Morgan Sindall, Interserve and affordable housing

Had the repeated profit warnings and speculation surrounding Balfour Beatty not occurred in the last few years, would more scrutiny have come Morgan Sindall’s way?

The UK’s largest contractor has become increasingly synonomous with terms like ‘woes’ and ‘beleaguered’ in recent times, with turbulence at the top as its leaders have come and gone, problem contracts rearing their heads, and a disconnect emerging between the plc’s needs and that of its teams on the ground.

But rather more quietly, sitting in the corner like an errant schoolboy whose indiscretions might be generously ascribed to peer pressure, lies Morgan Sindall.

It has faced similar problems for years now, albeit to a lesser extent, and - significantly - has taken decisive action (John Morgan reassuming the role of CEO, merging divisions, scaling back in volatile markets) earlier than its larger counterpart.

In its half year results today, the company reiterates it is narrowing its focus in London and the South-east, sticking predominantly to frameworks and avoiding potentially risky one-off jobs.

This is all sensible and an approach to repeat business (or avoiding expensive, one-off tenders) that has paid dividends for Interserve and Wates to name but two.

On its problem jobs, which have been ongoing for several years, the company says they are coming to an end (though they will still cost more than £40m in lost earnings this year alone) and margins will ‘normalise’ in 2016.

The group posted a 19 per cent drop in its profit before tax in 2014 but analysts are tipping them to go back towards 2013 (adjusted for problem jobs) earnings of more than £30m this year with revenue creeping up towards £2.5bn in 2016.

The company’s share price is up more than 25 per cent since the turn of the year, outperforming UK construction performance overall, despite a 3 per cent blip today at the time of writing.

Morgan Sindall share price 2015

And the briefing notes circulated today show that the company’s strategy appears to have the backing of the City.

They all point to the construction market as bringing down stronger performing parts of the group like fit-out and urban regeneration, but believe strengths will outweigh weaknesses in the years ahead, assuming they steer clear of nightmare jobs.

To illustrate this, construction has made a loss of around £4m in 2015 to-date, but London and the South-east lost £7m, with the rest of the market contributing around £3m in profit.

Overall then, you would probably say ‘okay’. Some good bits, some average, and one or two very bad jobs.

It’s nearly three years since John Morgan stepped back into the hot seat. It’s not quite job done for the CEO and co, but it’s not quite Balfour Beatty either.

Got 5 minutes?

Read why Interserve has had its work on a £120m EfW plant abruptly halted with the client complaining of project delays.

T Clarke’s non-executive chairman David Henderson will step down, despite improved results announced today.

Got 10 minutes?

Whether you want to read about what makes Irvine Sellar tick, Network Rail sick or Manchester City slick, go to our analysis page to read the latest big interviews and sector analysis.

From elsewhere:

This piece in the Guardian by Oliver Wainwright on developers exploiting affordable housing planning loopholes has got us talking and (occasionally) thinking.

 

 

 

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