Galliford Try Holdings plc
How do you value the stub of a business that sold off its
consistent earnings generator? Galliford Try Holdings plc (formerly known as
Galliford Try plc) is a UK-focused construction company that sold a large chunk
of its business (Linden Homes and Partnerships & Regeneration divisions),
which accounted for about half of its revenues before disposal and over 100% of
its profits.
What remains is a business with ‘Buildings’, ‘Infrastructure’,
and ‘PPP Investments’ segments that generated revenues of GBP 1.311 billion and
pre-tax losses of GBP 28.6 million in the last twelve months (before “exceptional”
items comprising several one-off items). The company has an order book of GBP
3.2 billion and management are targeting a 2% profit margin.
The net debt as at December 31st 2019 was GBP
225m. After the disposal on January 3rd 2020 and receipt of
consideration, however, management assert that the group operates with a net
cash position of GBP 225m.
The adjusted balance sheet isn’t available. The December 31st
balance sheet reveals net liabilities of GBP 377.9m (excluding goodwill) for
continuing operations. Management have indicated proceeds of GBP 300m, transferred
debt of GBP 100m and received “further working capital cash adjustment”. (The
balance consideration was paid in Vistry plc stock to shareholders.) This would
boost net assets to the sub GBP 100m mark. The equity is currently valued in the market at GBP 140m.
The CEO purchased 100,000
shares on the market at GBP 1.16 on March 12th (in addition to his stock awards). Other insiders purchased stock
on March 17th at GBP 1.20. The shares currently trade for GBP 1.27.
Covid-19 has put a halt to most work done by the company. 83%
of the projects, however, are with the public sector and the company should
benefit from the UK government’s relief programs.
Apart from insider purchases, it’s difficult to form an
analytical judgment on the figures without a profitable track record for the
continuing segments and the latest balance sheet.
The business was also subject to regulatory scrutiny of its
accounts that resulted in a GBP 104.7m downward adjustment to retained
earnings (before disposal). The books may be cleaner now but it’s far from clear that the company is
a bargain purchase.