Shares digital

Ahead of the interim results on 22 April, Andrew Nussey at KBC Peel Hunt has upgraded social housing and compliance services group Connaught to buy from add. The price target has also been nudged up to 475p from 450p as it anticipates the shares will rally once the financial figures are released.

Connaught, a recent Shares Play of the Week (21 February), spent £91 million on health and safety specialist National Britannia last September. ‘The half-year results will be the first opportunity to hear about National Britannia, its integration and opportunities as part of the larger group,’ said Nussey. He is seeking a £16 million maiden contribution, helping to drive up first-half group revenue by 52% to £250 million on the same period last year.

Nussey reckons Connaught’s share price will be triggered by any news in the results. He is looking for updates on potential bolt-on acquisitions and continued margin momentum on social housing.

The KBC target price of 475p equates to 20 times’ 2009 calendarised earnings: a 35% discount to the average three-year EPS growth. ‘It’s a high rating but the shares are worth buying because of earnings visibility,’ said Nussey.

Last October, Connaught said 85% of 2009 revenue had already been secured. This figure is likely to be much higher when the interims are published next week.

Connaught’s operating markets of social housing and compliance are together worth over £15 billion. It repairs and maintains buildings for local authorities and social landlords. A third of its business is compliance-related, such as checking gas systems and advising on health and safety.

Debt will be a key focus in the results, but the sharp increase won’t be a surprise to the City. The major acquisition of National Britannia and investment into new contracts will push net borrowings to £83 million, according to Nussey’s forecasts.