Morgan Sindall Group PLC (LON: MGNS)

Morgan Sindall Group PLC is an FTSE 250 index listed leading UK Construction & Regeneration group. Moreover, MGNS employs around 6,600 employees and operates in public, regulated and private sectors. The Company has five reportable business segments such as Construction & Infrastructure, Fit Out, Property Services, Partnership Housing and Urban Regeneration.

Recent trend of dividend payments

MGNS had paid an interim dividend of 30 pence per share on 26 October 2021, with an ex-dividend date of 7 October 2021, an increase of around 43% from the prior-year levels. In comparison, MGNS had paid an interim dividend of 21 pence per share during H1 FY20.

 (Source: LSE, chart created by Kalkine Group)

Growth Prospects (also covers Trading Update released on 03 November 2021)

• Diversified Market Sector: The company caters to multiple industries and sectors with no major exposure in a single sector or company. It creates a natural hedge against any industry or geography related risk and improves margins and negotiations.
• Robust Order Book: MGNS had a high-quality order book with a maintained secured workload of £8.3 billion at the end of H1 FY21. The order book further increased by 7% to £8.9 billion as of 30 September 2021.
• Accelerated Progress in Fit-Out Division: MGNS had shown significant progress in terms of converting projects from the preferred bidder stage into a contract. The order book stayed at £944 million at the end of September 2021, around 62% growth from the order book levels as of 30 June 2021.
• UK Construction PMI: Despite shortages of materials and staff, the IHS Markit/CIPS UK Construction Purchasing Managers' Index (PMI) witnessed an increase from 52.6 in September 2021 to 54.6 for October 2021.

Key Risks 

• Increasing Freight rates: Any increase in freight rates could put pressure on the delivery cost, impacting the margins of the company.
• Disruption in the Supply Chain: The failure of a key supplier to meet its contractual obligations could potentially result in some short to medium-term price increases and other short-term delays and disruptions to the Group’s projects and operations.
• Federal Tapering: The expected Federal tapering at the pace of USD 15 billion per month starting later this month may adversely impact the equity markets. Moreover, the Bank of England decided to keep interest rates unchanged in its latest meeting.

Now we will analyse some key fundamental and shareholders statistics of Morgan Sindall Group PLC.

Aberdeen Standard Investments (Edinburgh) is the most significant shareholder as it holds nearly 4.67 million shares as of 30 September 2021. 

Financial and Operational Highlights (for the six months ended 30 June 2021 as of 04 August 2021)

(Source: LSE Website)

• Strong Revenue Growth: The company reported robust revenue growth of around 14% when compared with H1 FY20 levels and approximately 10% as compared to H1 FY19.
• Robust Profitability: The adjusted profit before tax went up by around 238% to £53.1 million during H1 FY21. Furthermore, the growth remained around 46% when compared with pre-pandemic H1 FY19 levels.
• Balance Sheet: The Company had strengthened its balance sheet with an increase in net cash position from £146 million for H1 FY20 to £337 million at the end of H1 FY21.

Financial Ratios (H1 FY21)

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 08 November 2021, at 08:44 AM GMT, MGNS’s shares were trading at GBX 2,272.37, down by around 1.20% against the previous day closing price. Stock 52-week High and Low were GBX 2,730.00 and GBX 1,257.15, respectively.

On a daily chart, MGNS's price is sustaining between the middle and lower Bollinger band. Hence, there could be an uptick in the stock price in the near term. Moreover, the 14-days RSI of ~42.54 approaches oversold territory.

In the last one year, MGNS’s stock has delivered a decent positive return of ~69.43%. Also, it has outperformed the FTSE All-Share Construction & Materials index with a return of about 29.21% and the FTSE 250 index with a return of about 24.91%.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook

The Company had delivered encouraging financial performance during H1 FY21. In addition, the Company had upgraded the profitability guidance thrice in a year. MGNS had also strengthened its balance sheet with a substantial net cash position, providing a significant competitive advantage. The forward visibility provided by the order book boosted the Construction & Infrastructure division during H1 FY21 and expected to carry the positive momentum throughout 2021. Meanwhile, MGNS had recently launched a technology platform to support social housing landlords and tenants with real-time, actionable insights. MGNS anticipates that its full-year results for 2021 to remain significantly ahead of its previous expectations.

Considering the bright guidance, decent revenue growth during H1 FY21, robust growth in interim dividend payment, robust jump in profitability, recent approval of US infrastructure bill, and support from the valuation as done using the above method, we have given a “BUY” recommendation on Morgan Sindall Group PLC at the current price of GBX 2,272.37 (as on 08 November 2021 at 08:44 AM GMT), with lower-double digit upside potential based on 13.24x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.)

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

*The dividend yield is subject to change as per the stock price movement.

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