The wildly divergent year for the construction industry is continuing, as Morgan Sindall has bucked the trend to announce a strong first half.
Trading for the six months ending 30 June has been “substantially ahead of the prior year”, the construction group said in a trading update this morning.
The half year results, announced on the 8 August, are expected to show profit before tax of around £23.5m – a 45 per cent increase on the same period in 2016.
Morgan Sindall's shares were trading up more than six per cent at the time of writing, at 1,295p.
Deconstructing the figures
Trading in the first half was strong for Morgan Sindall, driven primarily by margin and profit growth in the fit-out business and by margin improvement in the construction and infrastructure branch.
“The strength in fit-out was no big surprise. We have seen performance ahead of expectations over the last 18 months – however that the strength has been sustained remains an impressive feat in itself,” said an analyst at Jefferies.
However, the performance in construction and infrastructure was more notable.
“Morgan Sindall has not been without challenges here in the past and the group has been banging the drum about contract selectivity and enhanced risk management for sometime now,” said the analyst.
The success was especially surprising given recent events in the sector. Research released today indicates that more than a quarter of firms are at risk of insolvency by 2020, while construction giant Carillion had almost £600m wiped off its market cap last week as it issued a profit warning.
While Carillion's shares bounced back after its joint venture was awarded contracts to contribute to HS2, Jefferies said Morgan Sindall “did well to stay out of HS2” as “high-profile 'trophy' contracts often have a high level of risk attached”.
Morgan Sindall also reported strong cash performance, with average daily net cash for the first half of £132m and net cash at 30 June of £97m.
“Conversion of revenues into cash is paramount to success in the world of construction and the lack of cash is causing some severe headaches at the moment, although Morgan Sindall is in no need of aspirin,” said the Jefferies analyst.