That company is Carillion, which has gained 4% in 2014, against a wider market fall of 3%, and declines of 12% for Mitie and 65% for Serco!
Boring and predictable
Carillion is undeniably a little dull.
But thats good, I reckon, given that Carillions sensible formula has enabled it to deliver an average annual total return (including dividends) of 8.2% over the last ten years, a full 1% higher than the FTSE 100.
Todays trading update from Carillion was a case in point: the firm reported new contract wins worth 4.6bn for the year to date, which takes the firms order book plus probable orders to more than 18.5bn, 500m than at the end of 2013.
As a result, 85% of Carillions revenue for 2015 is secured, which gives a decent level of credibility to the firms 2015 forecast P/E of 10.2 and its prospective yield of 5.2%.
Mitie isnt a bad buy: the firms shares trade on a 2015 forecast P/E of 11.4 and offer a prospective yield of 4.1%, with forecast dividend and earnings growth of around 5% next year, compared to 1-2% for Carillion.
Higher growth justifies a higher valuation, but given the low profit margins typical in this sector, Im more attracted to the safety margin offered by Carillions much lower levels of gearing 21% at Carillion, versus 63% at Mitie.
What about Serco?
While were on the subject of debt, this year has been pretty disastrous for Serco.
The public-sector focused outsourcing firm has lost 65% of its market value after admitting that it would face significant impairments on a number of big contracts, and would need to issue new shares in order to bring its debt levels under control.
Serco shareholders face the prospect of a 550m rights issue early in 2015, plus a cancelled dividend.
Sercos new chief executive, Rupert Soames, has an impressive reputation from his time at Aggreko and is probably the right person to turn the firm around. However, Id question whether Serco is really cheap enough for new buyers to take the plunge: the shares trade on a 2015 forecast P/E of around 16.
For me, Carillions combination of modest valuation, 5% yield and growing scale make it the most appealing choice by far.
However, all of these companies have relatively slim profit margins and could be hit hard by future changes in government policy and market conditions.
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