Office fit out specialist ISG is perfectly positioned to ride London’s building boom. Unusually for a firm operating in the construction industry, ISG paid its shareholders a dividend throughout the financial crisis. Anyone that held on was well-rewarded – the shares now trade at a five year high. Previously named Interior Services Group, ISG is a building-services firm with 2,500 staff. As the UK economy recovers, successful large companies and retail chains are looking to expand again. This has led to a dramatic increase in business at ISG.
three divisions delivered 85% of sales The company segments its reporting among seven divisions: UK Construction, UK Fit Out and Engineering Services, UK Retail, Continental Europe, Middle East, Asia and Rest of the World. Last year’s annual report confirmed that the first three divisions delivered 85% of all group sales and employ around 70% of ISG’s staff. The absence of the Olympic Games makes 2013 comparatives difficult in the UK Construction division. The first half of 2014 saw
ISG report a 17% sales decline in this division. However, confidence improved and the company won some large, prestigious residential work.
won the largest London office fit out contract The picture was much brighter in UK Fit Out as a 76% sales increase flowed through to a 50% rise in underlying profit. More wins followed the half-year close, with the company announcing that it had won the largest London office fit out contract of the last twelve months, a £125 million deal for Swiss bank UBS’ new UK headquarters. Less than one week later, this was followed by the news that ISG has won a £30m contract to remodel and refurbish London’s Art Deco Adelphi building. UK Retail showed a more subdued performance. This division typically works through ongoing frameworks with the likes of Marks & Spencer and Waitrose, refurbishing and updating sites throughout the year. The opportunity for UK Fit Out to dramatically increase group profits is clear. In the last full year, this division reported a 28% increase in operating profits on a 42% increase in sales. The recent six-month results revealed that sales growth has continued to accelerate. UK Fit Out reported a £254m order book for the current financial year compared with £129m twelve months previously.
Some investors will be put off ISG due to its thin operating margins. Margins remain low as the company completes work agreed during a much tougher environment.
analysts expect a 60% increase in EPS However, the UK’s return to growth, led by a continuing construction boom in London, could herald a vast improvement in profits. Indeed, according to financial website Stockopedia, analysts expect a 60% increase in earnings per share for the current financial year, with another 30% increase the year after. As London races to build more skyscraper offices and higher-rising high-end residential properties, ISG is ideally placed to profit. ISG (LON:ISG) FOR Net cash position Highly regarded in industry AGAINST Low margins Some recovery priced in Market cap Bid:offer P/E (forecast) Yield (forecast) 52week low:high
£115m 286p:290p 12.6 3.3% 127p:324p
Published on Mar 31, 2014