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Diversified middleweights prosper

FINANCE City Site

BRIGHTER times have arrived for medium-sized contractors. Helped by growing PFI and support services operations, companies that have kept a wide business mix across construction, housing and property are bringing in bumper results.

Last week brought positive news from Kier Group, Galliford Try and Morgan Sindall, which have all remained diversified, as well as from a series of privately owned contractors.

Shares in Kier Group rose 3 per cent after the firm said it expected to report profits well ahead of last year for the year ending June and at the higher end of market expectations.

Buoyant public and private construction markets have enabled it to be selective, while its regional business had a record year for awards and acted as a strong cash generator. As well, the firm's property business is making progress, while its housing completions rose 17 per cent and its housing forward order book is up 70 per cent at £96 million.

The lesson of the late 1980s was that construction companies need to take care not to become over-reliant on housing. Kier, which generated housing profits of £12.9 million in the first half out of total operating profits of £17 million, must be close to the level where investors feel uncomfortable.

Yet its non-housing businesses have also been expanding.The firm's support services arm is continuing to grow, despite fewer opportunities for local authority outsourcing contracts, and its PFI business seems to be motoring. It achieved financial close on three projects in the past four months with a combined capital value of £83 million.

Evidence of other PFI successes by medium-sized contractors also emerged last week. Galliford Try unveiled a 20-year framework partnering agreement for a NHS Local Improvement Finance Trust in north London, with contracts worth £32 million over the first three to four years.

Meanwhile, Morgan Sindall jointly signed a partnering agreement with the NHS Lift for Camden and Islington, which should generate work worth £50 million for its Bluestone construction arm.