John Laing Group PLC

John Laing Group Plc (JLG) is an investor, operator and manager of infrastructure assets primarily for the public sector. The group offers asset management services to both the primary and secondary investment portfolios through its subsidiary JLCM (John Laing Capital Management). John Laing offers its services to the companies operating in health, justice and emergency services, defence, regeneration, other accommodation, international accommodation, local authority development, roads, rail, street lighting, waste and utilities, and renewable energy sectors. The company operates in Europe, UK, Asia Pacific and North America.

Financial Highlights (FY 2018, £million)

(Source: Annual Report, Company Website)

In 2018, the net asset value increased by 41.16 per cent to £1,586.5 millionas compared with the financial year 2017 of £1,123.9 million. The NAV per share stood at 323 pence at December 31, 2018, up by 15 per cent against last year data. The company’s profit before tax was £296.6 million in FY2018 as compared to the financial year 2017 of £126.0 million, due to the fair value movement on the investment portfolio. The earnings per share (EPS) surged by 97.81 per cent to 63.1 pence as compared with the fiscal year 2017 of 31.9 pence. Total dividend per share for 2018 stood at 9.5 pence, a surge of 6.5 per cent over 2017. The company’s total investment portfolio on December 31, 2018 was £1,560.2 million as compared to £1,193.8 million as at December 31, 2017.

Share Price Performance

Daily Chart as at April-03-19, before the market close (Source: Thomson Reuters)
 
On 3^rd April 2019, at the time of writing (before the market close, GMT 8:45 AM), John Laing Group PLC shares were trading at GBX 397.2, up by 1.223 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 401.44/GBX 261.84. The outstanding market capitalisation was around £1.93 billion and a dividend yield of 1.38 per cent.

Recent News
On 16^th January 2019, Abu Dhabi Future Energy Co PJSC of United Arab Emirates (Masdar), a unit of the Emirati state-owned Mubadala Development Co PJSC, agreed to acquire an undisclosed minority stake in Undisclosed 149-MW Rocksprings Wind Park, a Del Rio-based electric power generation facility operator, a unit of John Laing Group PLC, in a privately negotiated transaction. Concurrently, Masdar agreed to acquire an undisclosed minority stake in Undisclosed 29.9-MW.

Valuation Methodology


Conclusion
John Laing Group PLC is an average quality company. With low operational risk, it has high information risk and acceptable market risk. A winding up of the UK PPP (Public-Private partnership) regime would trigger contractual compensation for the early termination of the infrastructure provision, albeit that there is a risk that the compensation would inadequately cover the portfolio asset value. A strong rise in interest rates and bond yields would increase benchmark discount rates and decrease the fair value of assets. Greater competition for primary investments in PPP and renewable energy could erode returns and the ability to drive net asset value growth. Negative foreign exchange rate movements of the portfolio would impair sterling asset values and net asset value. The current market sentiment in relation to the company is neutral with unfavorable fundamental indicators. Based on the prospects of the company and the valuation done using the above method, we believe investors can keep an eye on the stock while we have a wait and watch stance at the closing price of GBX 392.40 (as on 2nd April 2019).
 

Rotork PLC

Rotork Plc (ROR) is a UK based company that is into the flow control & actuator manufacturing. The company is headquartered in Bath, the United Kingdom and operates in any market where the flow of gases and liquids needs to be controlled. The company provides its services worldwide with the help of local offices and agents which help in easy availability of Rotork’s products, supported by maintenance, repair and upgrade services. The company operations are divided into four divisions: Rotork Instruments, Rotork Fluid Systems, Rotork Gears, and Rotork Controls.

Financial Highlights (FY 2018, £million)

(Source: Annual Presentation, Company Website)

The company reported revenue of £696 million for the FY2018 as compared to £642 million in FY2017. There was an increase of 8.3 per cent in revenue, due to strong revenue growth in downstream oil and gas and industrial markets. The company’s reported adjusted operating profit increased by 12.2 per cent in comparison with the last year data mainly due to a strong revenue performance and improved gross margin. Adjusted operating profit increased from £130 million in FY2017 to £146 million in FY18. As a result of higher operating profits, adjusted operating margin surged by 70 basis points against last year. The company’s profit before tax increased to £121 million in 2018 as compared to £81 million in 2017. There was an increase of 49.8 per cent in profit before tax due to a decline in the interest charges on pension scheme liabilities and foreign exchange losses in FY2018. Adjusted basic EPS stood at 12.6 pence in FY 2018 as compared to 10.6 pence in FY 2017. The company reported a dividend of 5.9 pence for the year ending December 2018 as compared to 5.4 pence in 2017 for the same period. There was an increase of 9.3 per cent in the dividend, due to strong cash generation by the company and commitment towards progressive dividend policy. The order intake rose by 2.3 per cent to £682 million as compared to the financial year 2017 of £667 million.

Share Price Performance

Daily Chart as at April-03-19, before the market close (Source: Thomson Reuters)

On 3^rd April 2019, at the time of writing (before the market close, GMT 9:00 AM), Rotork PLC shares were trading at GBX 299.10, up by 0.94 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 363.20/GBX 232.60. The outstanding market capitalisation was around £2.58 billion and a dividend yield of 1.99 per cent.

Recent News
On 06 March 2019, Rotork Plc had given impressive numbers as compared to the last year, but it’s trading environment is not that promising. There had been strong operational performance, but adverse economic conditions may affect growth in 2019. Most of the sales of the company are from the Oil & Gas sector. The group through selling its non-core businesses is trying to increase its efficiency. Many favourable indexes and GDP indicators have given support for the company’s water and industrial markets.

Valuation Methodology


Conclusion
The group has reported strong revenue and underline earnings for the financial year 2018. The company’s wide range of end-user markets, manufacturing capabilities, and its strong business performance of Controls and Fluid Systems segments are its major strengths, even as increasing trade receivables remains a cause for concern. New contracts, growing global refining industry and increasing demand for energy could provide ample growth opportunities for the company. However, increasing manpower costs in the UK, rapid technological changes and foreign currency fluctuations could affect the company’s performance in the future. The current trading levels indicate the stock movement towards 52-week high with support coming from growth drivers like increased revenue mainly because of strong revenue from oil and gas business. Based on the strong growth prospects of the company and the valuation done by using the above method, we have given a “BUY” recommendation at the closing price of GBX 296.3 (as on 2nd April 2019) with single-digit upside potential based on 5.03x NTM Price/Book Value (approx.) on FY19E book value per share (approx.).
 
*All forecasted figures and peers have been taken from Thomson Reuters.
*The buy recommendation is valid for the current price as covered in the report as on (3^rd April 2019).
 

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