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The British and European markets surged today (as on 12th June, before the market close) after falling steeply yesterday. Subsequently, the FTSE 100 index rose around 0.7 per cent, while the London focused mid-cap index, FTSE Mid 250 Index gained around 1.0 per cent.
The following factors can work as a catalyst in today’s trading environment:
- UK economy contracted 24.5 per cent in April 2020 compared to April 2019, while it shrank 20.4 per cent in April 2020 from March 2020, according to the Office for National Statistics.
- The Bank of England stated that the UK public’s average estimate for inflation in five years plunged to 2.6 per cent in May, lower since the survey began in 2009.
- The GDP of Italy can decline more than 8 per cent, as per its economy minister, Roberto Gualtieri.
- The UK house prices plunged 32 per cent in May, touching the lowest since 2010.
In view of prevailing market conditions, we will throw light on two Construction & Material stocks - Morgan Sindall Group PLC (LON:MGNS) and Kier Group (LON:KIE). As on 12th June 2020 (before the market close at 1.59 PM GMT+1), MGNS was trading 5.5 per cent higher, while KIE was soaring around 3.5 per cent, against the previous day closing. In order to better understand the stock price movements, we will walk through the current financial and operational position of the Companies.
Morgan Sindall Group PLC (LON:MGNS) – Building a substantial positive momentum from last year across all divisions.
Morgan Sindall Group PLC is a FTSE 250 listed Company, which is involved in the construction business. The Company operates through six business segments. The Construction and infrastructure cater to construction and infrastructure design and build services. The fit-out segment focuses on fit out and refurbishment projects. The Property services division provides asset management and responsive maintenance to social housing and public sector. The Partnership housing, focuses on mixed-tenure developments, building and developing homes for open market sale and affordable rent and refurbishment. The Urban regeneration focuses on the delivery of new mixed-use regeneration, and Investments segment creates partnerships to develop under-utilised property assets.
(Source: Presentation, Company Website)
Synopsis of Recent Regulatory Updates
13th May 2020: The Company made an application for a block listing of 142,500 Ordinary Shares to the UK listing authority.
31st March 2020: Alongside Numis Securities Limited as its corporate broker the Company had appointed HSBC Bank PLC as well, with immediate effect.
Trading Update – Taken Effective Actions to Put MGNS on the Best Footing
On 7th May 2020, the Group provided an update on trading and COVID-19, following the Group's previous update released on 25 March 2020. In the first ten weeks of the financial year, the Group continued to perform well, building on the substantial positive momentum from the previous year. Currently, trading and activity have been wedged significantly across all divisions. Additional Highlights are:
- In the Construction division, approximately 80 per cent of sites are currently operational; however they are being wedged by lower levels of productivity, due to the limited availability of certain building materials on site.
- In the Infrastructure division, approximately 75 per cent of sites are now operational, and this unit expected to progress towards reopening of all sites in the short term.
- In the Aviation business, the Group witnessed a significant and immediate reduction in all current and future planned activity.
- The Group has taken several effective actions to reduce discretionary costs and improve cash flow such as the Board Members and Senior Management Team have all taken salary reductions of 20 per cent for a period of 3 months (from 1 April), the final dividend for 2019 (approximately GBP 17 million) was cancelled, etc.
- The Company stays in a robust financial position, with net cash of GBP 174 million (including GBP 55 million in JVs/PBAs) as at 5th May 2020 and committed bank facilities of GBP 180 million (extending out to 2022). On 5th May 2020, the total liquidity was GBP 354 million.
- The total Group secured workload was GBP 7.6 billion as of 31 March 2020.
- Led by growth in Partnership Housing's order book of mixed-tenure partnership developments, the Construction secured order book decreased by 5 per cent to GBP 3.5 billion from the year-end. While the Regeneration secured order book was up by 4 per cent at £4.1 billion.
Share Price Performance
(Source: EODHD/Others, Thomson Reuters) -1-Year Chart as of June 12th, 2020, before the market close
MGNS’s shares were quoting at GBX 1,232.00 on 12th June 2020 (before the market close at 2:58 PM GMT+1). Stock's 52 weeks High is GBX 1,980.00 and Low is GBX 1,032.00. Total outstanding M-Cap. (market capitalization) stood at approximately GBP 528.32 million.
Business Outlook
With this high-quality workload and with the balance sheet in good shape, the Group is on-track to successfully navigate through these existing uncertain times and emerge primed for future success in the medium and longer-term. The need for investment in infrastructure, urban regeneration and the increasing demand in the UK for affordable housing augurs well for the company, which offers a balanced business that fits well in demand by society. Several of the housebuilder’s companies are preparing for a harder market through M&A (mergers and acquisition). Due to COVID-19 pandemic, the construction industry outlook stays uncertain. As such, the management is confident that the Morgan Sindall has access to enough liquidity, which will be required in the event of a further substantial deterioration in the market and general economic conditions.
Kier Group PLC (LON:KIE) – Adopting COVID-19 mitigating actions.
Kier Group PLC is a FTSE All-Share listed Infrastructure and Construction Company. The Company has offices across England, Scotland, Wales, and Northern Ireland. It operates as an investor, builder, and maintainer of the UK assets. It serves a wide range of sectors including bioscience, education, health, highways, housing, industrial, power and energy, property, transport, and utilities. The Company has four business segments, namely Property, Residential, Construction and Services.
(Source: Annual Report, Company Website)
Recent Significant Developments of 2020
22nd May 2020: The Company’s chair for the Safety, Health and Environment Committee, Kirsty Bashforth has decided not to seek re-election for the position of non-executive director.
30th March 2020: The Company confirmed its total facility of around GBP 910 million, and average month end net debt of GBP 395 million, during the six months period ended 31st December 2019.
COVID-19 Update – Cut Remuneration by up to 25% to Maintain COVID-19 Efficiency
On 30th March 2020, the Company provided an update in light of COVID-19. Trading from 1 January 2020 till date has been in line with the management’s anticipations. Approximately 80 per cent of the company’s sites continue to operate. Further Highlights are stated below:
- The company is contemplating cessation of work at Kier Living house-building sites.
- The construction company has taken several actions such as the employees as well as the executive committee, and the Board are taking a reduction of between 7.5 per cent and 25 per cent in their base salaries.
- Net debt stays in line with the Board's anticipations. For the six-month period ended 31 December 2019, the average month-end net debt stood at GBP 395 million.
- The Group has total facilities of approximately GBP 910 million, including approximately GBP 700 million of facilities (due for renewal during 2022).
Share Price Performance
(Source: EODHD/Others, Thomson Reuters) -1-Year Chart as of June 12th, 2020, before the market close
KIE’s shares were quoting at GBX 93.3953 on 12th June 2020 (before the market close at 3:03 PM GMT+1). Stock's 52 weeks High is GBX 206.00 and Low is GBX 58.40. Total outstanding M-Cap. (market capitalization) stood at approximately GBP 146.68 million.
Business Outlook
The second half has started positively with significant orders received. Its cost reduction programme is projected to deliver benefits of at least GBP 65 million by 30 June 2021. The Group expects to progress the sale of Living and to decrease the capital invested in its non-core businesses. Moreover, the Group has adopted several actions to preserve the cash flow of the business. The ongoing disruption continues to create an imbalance between demand and supply for construction properties at affordable prices. With a leading market position, a wide range of brands and broad distribution channels, the Group shall return to growth as soon as market revives.
