Carillion confident despite challenges
BUILDING and support services group Carillion said it expected an increase in earnings in 2010 due to a strong order book and more government outsourcing, despite challenging market conditions.
Carillion, which generates much of its revenue from government work and public private partnership (PPP) projects, said investments in PPP continued to generate “substantial value” and it expected to maintain a positive net cash position for the first six months of 2010. The firm has an order book of £19.7bn.
“All business sectors are performing in line with our expectations. The order book remains very strong … I think very much the hot news on the emergency budget was pretty much in line with our expectations,” said chief executive John McDonough.
Carillion said it did not expect government spending cuts to have a big impact and would likely boost future revenue as the government would lean more heavily on private sector outsourcing to help drive down costs.
“By the back end of 2011 to 2015 there will be significant opportunities,” McDonough said.
Last month the FTSE 250 company sold its investments in the Queen Alexandra Hospital PPP project to HSBC Infrastructure for £31.3m.
McDonough said about £500m of Carillion’s contracts in the pipeline were at the preferred bidder stage and therefore still subject to change, delay or cancellation.
He said organic growth would be Carillion’s focus but that it would consider making bolt-on acquisitions in Britain, if the right opportunity came along.
“We’ve got cash on the balance sheet, we’ve got great growth in the Middle East and in Canada,” McDonough said.
Panmure Gordon increased its target price on the Carillion shares from 300p to 350p.
“It retains good revenue visibility, a sound balance sheet and has an attractive valuation,” Panmure analyst Andy Brown said in a note.