Morgan Sindall Group Plc (MGNS), a U.K. construction company that specializes in affordable housing and urban regeneration, said it intends to gain more lucrative work after first-half earnings declined.
“There is more work around, so we can be more choosey,” Chief Executive Officer John Morgan said in an interview. “The reality is it’s not going to change overnight, but the work we are winning is better-quality work.”
Pretax profit fell 95 percent to 1 million pounds ($1.54 million) in the first six months as Morgan Sindall took a 13 million-pound charge for payments it hasn’t received on a “small number” of contracts. Adjusted for the provision and intangible amortization, the measure declined 24 percent, while revenue rose 2 percent to 1.02 billion pounds, the London-based company said today in a statement.
Morgan Sindall has struggled as it tries to reduce reliance on government spending and increase business in urban regeneration. European construction companies face declining profit margins amid a lack of work, although Balfour Beatty Plc (BBY) said in July it expects first-half U.K. losses to be recouped in the second half. Balfour gets more than one-third of its revenue from the U.S., while Morgan Sindall is almost entirely reliant on the U.K.
The outlook for British building contracts is improving, with the U.K. Purchasing Managers Index for construction jumping to 57 in July from 51 in June, the highest since June 2010 and ahead of the median estimate of 13 economists surveyed by Bloomberg. A reading above 50 indicates expansion.
Morgan Sindall is “doing a good job of riding the waves” of the construction market, Anthony Codling, an analyst at Jefferies, said today in a note to clients. He reiterated a buy recommendation on the stock.
The shares fell 0.6 percent to 655 pence as of 2:13 p.m. in London, after declining as much as 7.4 percent earlier in the day. Morgan Sindall has gained 27 percent this year, valuing the company at 282 million pounds.
“Market conditions remain difficult and competitive pressures have negatively impacted operating margins and profitability, but net debt has reduced,” Codling said. The company’s focus on cash management and contract selectivity means that its “self-help is working,” he said.
Morgan Sindall said it had 40 million pounds in cash at the end of the period, and average daily net debt of 32 million pounds, compared to net debt of 12 million pounds and average debt of 36 million pounds a year earlier.
“It’s an absolute focus on cash,” said Stephen Crummett, Morgan Sindall’s finance director “Such that it gives us the flexibility to invest in some of the regeneration schemes.”