Heavy construction specialist Morgan Sindall (MGNS) saw its shares shed 3.1% to 542.5p after revealing that its first quarter performance was slightly below the board's expectations.


Ongoing margin pressure in the group's construction, infrastructure and affordable housing divisions was blamed for the disappointing news. There seems to be little to cheer about the near future with the group's outlook statement suggesting that 'general market conditions are expected to remain difficult throughout 2013 and no significant short-term improvement is envisaged.'


It could have been worse. The group maintained that the 'full impact' of these highly competitive market conditions had been mitigated, in part, by overhead cost savings derived from the restructuring announced in November 2012.


The £241.2 million cap builder announced in its November interim management statement that it would close four offices in Ashford, Banbury, Bristol and Theale after it had already confirmed the closure of its Durham office in October as part of a restructure. These organisational changes had a one-off impact for 2012, estimated at £10 million.


Morgan Sindall


It was not all bad news. Morgan Sindall's forward order book as at the end of the first quarter was £3.2 billion, up 6% from the year end which the group say reflects 'positive levels of selective bidding activity.'


There were also some encouraging signs on the debt front; net debt at quarter end stood at £23 million while average daily net debt from the start of the year up to 30 April was £35 million.


Maintaining a 'hold' rating, Liberum's William Shirley said his short-term preference was for a stronger Morgan Sindall balance sheet but believed nevertheless that management would now at least maintain the (recently cut) dividend. Today's statement prompted Liberum to cut both its full year 2013 and 2014 earnings per share estimates by 10%, to 58.9p and 64.5p respectively.


Harold Seymour at Numis, while retaining a 'buy' rating, acknowledged the ongoing toughness of 2013 trading conditions in construction and affordable housing and pointed out that 'tender margins have stabilised and that activity levels are seeing tentative signs of improvement.' He adds: 'The benefit of these will be felt in 2014 and beyond, so we continue to argue that 2013 is the trough for these activities in profit terms.'


Issue Date: 09 May 2013