A profit warning from housebuilder Galliford Try’s (GFRD) construction division has unnerved investors. The stock slumped 10% to £13.17 as the company revealed soaring costs on several previously agreed construction projects in which the company is a partner.

Galliford has overhauled its risk management and operating performance processes to ensure that 'new work contains sufficient allowances for risk, margin and inflation,' but heavy damage has already been done.

The company plans to take a one-off £98m hit to complete contracted work, 80% of which is down to just two projects. This troublesome pair are set for completion in mid-2017 and mid-2018 respectively.

Peel Hunt analyst Clyde Lewis speculates that the Forth Road Bridge replacement crossing, and the Aberdeen Western Peripheral Road project are the project culprits, ‘given the scale of the losses.’

Galliford Try graph

Management are painting a positive picture of its construction division aside from this very obvious cost over-run flaw, saying the business continues to perform well. It is expected to deliver turnover growth to £1.8bn by 2021, with improvements to operating margins to over 2%.

Analysts at Peel Hunt and HSBC have both cut their respective target prices for the shares, to £16.20 and £18.50. But both brokers also retain their 'buy' advice to clients, flagging Galliford's strategy that could deliver compound dividend growth of 5% per year through to 2021.

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Issue Date: 03 May 2017