Construction firm Morgan Sindall (MGNS) offers a rare positive surprise in a UK construction space still reeling from Carillion’s (CLLN) monster profit warning (10 Jul).

The £545m market cap gains 5.9% to £12.92 as it guides for full year results to be ‘significantly ahead’ of expectations.

Improvements in its office fit-out division and a stronger margin performance from the construction business means it should hit profit of £23.5m for the first half, up 45% year-on-year.

With further improvement expected in the second half, results for 2017 as a whole should make for excellent reading.

Stockbroker Numis upgrades its pre-tax profit forecast for 2017 by 13% and for 2018 by 14%.

RECOVERY PLAY

This is a recovery story. The shares have more than doubled on the lows seen in the wake of the Brexit vote last summer and after a series of warnings linked to over-running costs and poorly priced contracts.

MGNS

The shares currently trade on 11.9 times Numis’ upgraded 2017 earnings per share forecast. This seems about right given the ongoing risks linked to the UK’s exit from the European Union.

Numis analyst Howard Seymour has an ‘add’ recommendation on the stock with a £13.50 price target.

He comments: ‘We raise our target price to reflect the upgrade and retain our “add” recommendation based on Morgan Sindall's attractive mix of recovery coupled with utilising the group's financial strength into attractive growth markets.’

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Issue Date: 19 Jul 2017