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Carillion fallout: Galliford Try slumps on fund raise

Shares in builder fall nearly 20% on news of £150 million fund raise to cover the cost of joint venture with collapsed construction group.

 
Carillion fallout: Galliford Try slumps on fund raise
 

Shares in Galliford Try (GFRD) have slumped after the builder announced plans to raise £150 million to cover the costs of its joint venture to build a major ring road with collapsed construction group Carillion.

The shares tumbled to the bottom of the FTSE 250, down nearly 20% at 796p, as the cash call caught investors by surprise and overshadowed otherwise solid results.

Galliford said it would raise the money from investors in coming weeks to cover the cost of the Aberdeen Western Peripheral Route project with Carillion, which collapsed into liquidation last month.

Russ Mould, investment director at AJ Bell, said the fundraising was a 'nasty surprise' for investors.

'Although the company could have absorbed the extra costs without raising money it did not want to divert funds from the higher quality regeneration and house building divisions, which both delivered strong results in 2017.'

Today's heavy fall sees the shares trading at levels not seen since the Brexit vote, having already trailed the wider house building sector this year thanks to Carillion's collapse.

Investors were also digesting a cut to the dividend, with today's 28p declared down from last year's 32p payout, as management brought forward a target to restore cover to two times.

Analysts welcomed Galliford's attempts to shore up its balance sheet. 'The capital raise is unexpected, but should be supported as it will eliminate any perception of financial weakness,' said Charlie Campbell, analyst at Liberum.

'The group's balance sheet will be strong after the raise, which although uncertain in timing has been fully underwritten.'

Campbell retained his 'buy' rating and £15.50 target price on the news. 'We see more upside in Galliford Try than in any of the other house builders,' he said.

'The historic and not-to-be-repeated errors in construction have had a disproportionate effect on valuation, which also does not reflect the prospects and high quality of [house building arm] Linden and [regeneration division] Partnerships.'

Strong performance from both those divisions helped drive a 14% jump in first-half revenues for the group, with profits up 29% at £83 million. 

Peel Hunt analyst Clyde Lewis also retained his 'buy' rating, on a target price of £16.20.

'Current trading has been robust with further margin gains expected in Linden in the second half, good revenue growth in Partnerships and continued normalisation of margins in construction,' he said.

'As a result, we are not changing any profit before tax forecasts for 2018-20.'

The impact of Carillion's collapse was also felt by investors in Serco (SRP) this morning, as the outsourcing group announced it had renegoitiated the price for a portfolio of contracts for managing health facilities bought from Carillion in December.

Shares in the group jumped 2.5% to 85.6p on news it had bartered down the price from £48 million to £29.7 million.

2 comments so far. Why not have your say?

Anonymous 1 needed this 'off the record'

Feb 14, 2018 at 16:29

For once could Liberum be correct with their uber bullish TP? This could be described as another typical stock market over reaction to management being prudent or may be the Aberdeen project is such a cash muncher that not all the bad news has come out post Carillion ? More provisions chaps?

Cutting the dividend and raising cash at least looks prudent to me and means ( on the face of it) the finances are strong at the short term expense of the share price. Still a stock where the comment is never mind the quality look at the yield.

Not seen comment from other firms covering the stock yet so maybe a few less bullish comments around shortly

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DavidT

Feb 14, 2018 at 17:00

Does anyone know (or can say) what the underwriting price for the forthcoming share placing might be? Then the dilutive impact on existing shareholders can then be worked out. Does anyone know whether Morrison - the Braveheart subsidiary - is to be retained or de-emphasised? Linden and the Partnership subsidiaries are probably worth more without construction.

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