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JSG and Erinaceous had a tough time. It’s depressing to see another couple of bad apples (partially) spoiling the sector story, but no one is blaming the credit crunch.
The data
We’ve made some changes to the companies we track. Out have gone a couple of IT players - Logica and Xansa. And in have come some private companies like Amey and Telent. We’ve relaxed our focus on listed plcs, as the privately-held sector has grown.
The total number of companies is now 30, and represents aggregate sales of over £50bn and profits of £2.7bn. That’s a 5% net margin.
Growth
Growth was strong last year. Our companies grew by 13% over the year. If anything, this shows an acceleration in the second half, in defiance of the turn in mood.
Our companies grew by 13% over the year.
Other laggards were Compass and Rentokil. These businesses look as they did before and it’s easier to say what their problems are – price pressured markets – than what the solutions might be. See article on Rentokil on page 3.
Elsewhere it was all systems go, with average growth of 20%. Three of our perennial favourites, Babcock, Balfour and the newly shortened Mouchel, beat the average once again.
Three of the very fastest growing, Galliford Try, Spice and Morgan Sindall, all relied on significant acquisitions. If the market does take a turn, these acquisitions will need to be bedded in fast.
Margins
Roundabout the 5% mark – that’s about right for the sector as a whole. Some companies do better than this: generally because they operate in segments that support higher margins.
What we look for is changes.
Having been a consistent seven percenter since we started tracking them, Mouchel is down at 3.5% as the integration costs of its HBS acquisition kick in. The deal is clearly a big test. We’re fans but understand why the City might want to see how things pan out.
Elsewhere, Amec got back into positive figures. Rentokil ticked further down. Capita held steady, on solid revenue gains. None of this is surprising.
Performance
Our companies have held value over the last six months. JSG has lost over 90% of its value. Others have had to make up for these mistakes with solid performances.
The strongest performance came from Connaught, with a combination of a leading position – and excellent execution – in social housing and an intelligent move into the wider compliance market. If we’ve seemed immodest in our predictions in the paragraphs above, let us just say that we didn’t guess at a 30% gain for Mark Davies’ team.
Two other strong best revenue performers have not had the best time of it. Morgan Sindall and Galliford Try lost over 30% each as the crunch hit housebuilders (even the affordable ones).
Good conditions or not, the City was in no mood to reward audacious acquirers last year.
Amy Boyle is a Consultant at Credo.
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