Wednesday, 3 July 2013

Carillion - Half Year Trading Update

Recession or no recession in the developed world, the construction work goes on. Construction and support services provider Carillion seems to be doing OK.  It is building an integrated business model that customers like because it means a lot of different tasks can be placed with just one supplier.

Although based in the UK, an increasingly significant profit driver for the future is likely to be its activities in the Middle East and Canada.  Medium-term objectives for Carillion remain the same - it sees substantial organic growth in UK support services from 2013 onwards and it plans to double international revenues over the next three to five years.

Carillion’s half year trading update issued today confirms trading is on track with a strong intake of new orders (and probable orders!) of £2.9bn. The share price is up slightly at 277p in a generally falling market so I think we can take it that Mr. Market has been reassured by the update

The main concerns for me would be two-fold, a rising debt of around £270m (£156m end 2012) and a significant pension deficit. They are hoping the debt level will be reduced by the end of this year.

The company appears to be fairly resilient and seems to be holding up reasonably well in a tough market. The half year figures should be confirmed in mid August together with details of the interim dividend. The figure for the current year is 17.25p which gives a current yield of around 6.2% and a cover of 2.2x. I suspect there may not be much more on offer for this current year.

Personally, I would not be adding but maybe still a hold so long as I remain confident the debt starts to diminish and the dividend can be increased at a sustainable level.

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