Construction group,Morgan Sindall(LSE: MGNS) is falling today, after the company issued what can only be described as a profit warning alongside its interim management statement.
The group has announced this morning, that while its affordable housing, urban regeneration, fit out and infrastructure activities have performed in line with expectations, during the first half of Morgans financial year, a small number of construction contracts have held the group back.
Thanks to timetable slippages and increased costs related to this handful of projects, located within London and the South East, Morgans management now expects the companys full-year results to be below previous expectations.
Commenting on todays results and profit warning,John Morgan, Chief Executive, said:
We are obviously disappointed that a small number of construction contracts in London and the South have been impacted by timetable slippage and increased estimated costs to complete. This is a short-term and localised issue which is receiving the highest level of management attention and which should be worked through over the next six months.
Below expectations
Before todays announcement from Morgan, the City was expecting the company to announce earnings per share of 61.4p for this year. However, now the company has warned on profits, this figure is obviously out of date.
Nevertheless, it remains to be seen what the scale of Morgans miss will be and until this is known, itsdifficult to place a valuation on the company.
That being said, looking at the wording of todays statement, it seems as if the company will only just miss expectations. Theres nothing to suggest that the companys earnings will drop by a significant amount.
For example, according to the companys trading statement, as mentioned above, its only a small number of projects that are causing the company trouble. All other contracts are proceeding according to plan.
Further, the groups order book at the end of September stood at 2.7bn up 12% from the start of the year. Additionally, Morgans regeneration & development pipeline stands at 3.2bn, up 5% from the start of the year.
Bright prospects
Overall, it seems as if the majority of Morgans business continues to trade well. Its just a few projects that are holding the group back.
With that in mind, Morgan remains an attractive investment at present levels. For example, the company is currently trading at an undemanding historic P/E of 12.4, based on 2013 earnings per share of 60.9p. The companys earnings were expected to expand 1% this year to 61.4p. So, a slight downward revision in predicted earnings wont hurt the companys valuation that much.
Whats more, for Morgans existing shareholders, at present levels the company supports a dividend yield of 3.4%. The payout is covered two-and-a-half times by earnings per share.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
