Uncertainty lingers after yesterday's RNS.
Uncertainty opens the door to shorters.
Hopefully Galliford will work hard to give full and accurate information to
the market as soon as possible.
It is not a situation where our company could have been surprised by the
collapse of CLLN.
Galliford and BB have been left holding the baby in Aberdeen which they are contractually obliged to complete. Assuming it was roughly 33% split between the three main contractors in the JV then it appears the GFRD RNS was unduly alarmist. There will be additional costs for BB and GFRD to complete the project but as long as the contract is being paid admeasure then presumably there will be a larger invoice to the client for services rendered, hopefully at a similar profit margin to the previous invoices.
What we arent party to is whether Carillion have been paid up front and failed to deliver their part of the contract. Thats the risk being reflected in the SP today as the bulk of the outstanding costs would be down to the JV and non reimbursable.
Given BB are in 3 JVs needing completion Im perplexed as to why their SP has held up better than GFRDs.
All said Ill continue to hold. Dont see the need to panic sell yet.
So if it is primarily a cash flow issue. Then I don't see why we should panic. I'm sure that there is a negotiation to be had with the Scottish Govt about redirecting and improving the payment schedule.
I'm not suggesting it is a great situation, and there won't be a cost, but its not a disaster.
Many years ago the company I owned, was a sub contractor to Marconi when they failed. They owed me quite a chunk of money, but as the ultimate customer for my product was the MOD, and they really wanted me to spend more money and complete the contract. An arrangement was found. This resulted in my company eventually receiving full payment and the contract being finished to everyone's satisfaction .
The situation with GFRD and the Scottish Govt seems similar ............IMHO
G&T's wording is poor, hence the market takes the worst case scenario. They see £550m mentioned first and get a nasty flush, then they read ' the additional cash contribution outstanding from Carillion to complete the project is £60-80 million' whereas BBY's statement is totally clear and is far less alarming. Hence I wrote 'It's how you tell then' We are down 7% BBY is down 2% yet the are both talking about the same effect! (Or are they?)
Our current estimate of the additional cash contribution outstanding from Carillion to complete the project is £60-80 million, of which any shortfall will be funded equally between the joint venture members
I'm rather confused by that statement. By 'cash contribution' do they mean that they are going to have to write off £60-80 million. Or do they mean that there is a funding requirement to complete the project and that the JV members are going to have to fund it. I'm hoping the latter
Obviously there will be a write off due to CLLN not paying its subbies, ie GFRD. But I would be surprised if it was that large....surly it can't be more than 90days ?
Balfour Beatty Wording:
Balfour Beatty is in Joint Venture with Carillion on three projects: the Aberdeen Western Peripheral Route, the A14 in Cambridgeshire and the M60 Junction 8 to M62 Junction 20 scheme.
Balfour Beatty will continue to work with its customers and will meet its contractual commitments.
The cash impact to Balfour Beatty is likely to be an outflow in the range of £35 million to £45 million in 2018.
The Group is in joint venture with Carillion and Balfour Beatty on the £550 million Aberdeen Western Peripheral Route contract. The terms of the contract are such that the remaining joint venture members, Balfour Beatty and Galliford Try, are obliged to complete the contract. Our current estimate of the additional cash contribution outstanding from Carillion to complete the project is £60-80 million, of which any shortfall will be funded equally between the joint venture members
I think BB's wording sounds less concerning than G&T's
Today's current prices:
BBY -8.50 (-2.76%)
GFRD -87.0 (-6.80%)
The note from Floatingboater below from the RNS says "Our current estimate of the additional cash contribution outstanding from Carillion to complete the project is £60-80 million, of which any shortfall will be funded equally between the joint venture members."
So surely if equally shared that would make the contribution estimate £30-£40million each.
If Carillion had priced their work so badly I would think that picking up any of their contracts would be a real poison chalice without a huge amount of renegotiation. The one they have just announced in the RNS is going to cost them £80 million + as it is.
From GFRD website
15 January 2018
Galliford Try plc
Joint Venture with Carillion plc
Galliford Try plc (the "Group") notes the announcement by Carillion plc this morning. The Group is in joint venture with Carillion and Balfour Beatty on the £550 million Aberdeen Western Peripheral Route contract. The terms of the contract are such that the remaining joint venture members, Balfour Beatty and Galliford Try, are obliged to complete the contract. Our current estimate of the additional cash contribution outstanding from Carillion to complete the project is £60-80 million, of which any shortfall will be funded equally between the joint venture members.
The companies will discuss the position urgently with the Official Receiver of Carillion and Transport Scotland, to minimise any impact on the project.
Galliford Try has no other significant contracts or projects with Carillion.
The Group will announce its Half Year Results on 14 February 2018.
The 'problem' with GT is the mix. On a t/o basis 70% comes from construction & 30% from house bldg. On a trading profit basis 91% comes from house bldg. & 9% from construction. Construction margins are sub 1% & falling. That's an awful big negative fly wheel & as the recent profit warning on misstatement of construction contracts showed can wipe out virtually all the house bldg. profit. This is the usual hybrid co problem - so I'm not a fan of hybrid co.s. If you want something like this why not buy just a house builder - Mr Mkt giving them away right now!
Despite the departure of Greg Fitzgerald I have faith in the newish management to keep the good ship Galliford on track and keep paying the considerable divis. I'm considering adding at these prices but GFRD is already my largest holding so will probably make do with merely reinvesting the divis.
Forecast yield is a very attractive 8.3% forecast div cover ×1.7.
Forecast PE 7.0 and pre-tax profits forecast to rise 191%.
ROE 23.0% and ROCE 11.2%.
Cannot understand why GFRD so undervalued, as an income stock it looks like a strong buy and profit growth suggests SP will rise. I know they made mistakes in the past with fixed price contracts for construction work but that is all behind them now and they have made it clear they will not do more fixed price contracts.
Galliford Try continues to see good market conditions across its three businesses, shareholders at today's annual general meeting will be told. Chief executive Peter Truscott will say: 'Linden Homes has enjoyed average sales rates of 0.62 units per site per week since the start of the financial year (2016: 0.56 for the equivalent period), providing a good in hand position of sales reserved, contracted or completed of £652 million (2016: £614 million). 'Linden Homes has a landbank of 11,200 plots (2016: 11,430) with land opportunities remaining positive. 100% of land required for the current financial year is in place and 93% of land is secured for the financial year to 30 June 2019.
If the below statement is a correct assessment - perhaps we should be wading in ahead of tomorrow's AGM??
The CEO stated (just 8 weeks ago):
"Entering the new financial year, we remain cautious about the impact of the current political uncertainty and the medium-term outlook for the macro economy. However, all three businesses have clearly defined plans as part of our 2021 strategy, providing the Group with confidence in its ability to deliver a strong performance even in a period of lower growth in the wider economy. Our strong Group order book and disciplined approach to land acquisition and contract selection provide us with solid foundations to deliver further growth in FY 2018."
Perhaps a few worries about the construction side, that there may be more
exceptionals arising from legacy contracts ? Also, construction margins are wafer
thin, so very subject to unknown cost increases. But as regards unknown , unknowns,
who knows ?
simplywall.st have a DCF value for this company of over £60, and the next 5 years estimated cash inflows cover the current share price. I am staying with this one.
With the exception of the new CEO, the management that entered into the construction contracts that have wiped out seven years of construction division gains and failed to provide for them until this year, are being rewarded with another chunk of options for which they pay nothing, and are another bonus for just doing the job that they are well paid to do. The higher dividend this year has not been earned by the profits and it will be surprising if the housing boom has peaked - Pidgeon of Berkeley selling shares is the best signal one could get. Time to sell I think
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