Delivering against guidance

John Laing Group 14 December 2018 Update
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John Laing Group

Delivering against guidance

Pre-close update

Investment companies

14 December 2018

Price

313.4p

Market cap

£1,538m

Net cash (company definition, £m) at 30 June 2018

234

Shares in issue

490.8m

Free float

99%

Code

JLG

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(2.7)

0.3

22.2

Rel (local)

0.4

7.5

33.9

52-week high/low

332.4p

239.9p

Business description

John Laing is an originator, active investor in and manager of greenfield infrastructure projects. It operates internationally and its business is focused on the transport, energy social and environmental sectors.

Next events

FY18 results

March 2019

Analyst

Graeme Moyse

+44 (0)20 3077 5700

John Laing Group is a research client of Edison Investment Research Limited

John Laing Group’s (JLG’s) pre-close update confirms the strong level of activity in the business in FY18. JLG will provide guidance on the level of realisations and investment commitments expected for FY19 at its results (due March) but we believe the outlook for next year and beyond appears encouraging based on the investment pipeline and global demand for infrastructure. JLG’s discount to its peer group does not reflect its proven track record or the prospects for further growth.

Year end

NAV

(p)

EPS*
(p)

DPS*
(p)

P/NAV
(x)

P/E
(x)

Yield
(%)

12/17

281

31.9

8.9

1.1

9.8

2.8

12/18e

318

57.4

9.2

1.0

5.5

2.9

12/19e

355

46.9

9.3

0.9

6.7

3.0

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

High levels of investment activity

JLG revealed that investment commitments for the year so far have amounted to £267m, with up to another £30m possible before the year end (guidance £250m). Total realisations completed in 2018 amounted to £241.5m (guidance £250m) with a further £54.5m (Manchester Waste TPS) agreed but not yet completed. The special component of the DPS will be based on the realisation figure of £241.5m. According to JLG, with the exception of the sale of IEP Phase 1 completed earlier in the year at above book valuation, the investment portfolio has performed ‘in line with expectations’. At 30 November, the IAS19 pension surplus had fallen to £6m from £24m at the end of June.

Encouraging outlook for FY19 and beyond

According to JLG, the investment outlook and the market for secondary assets remain strong. JLG is shortlisted for 10 PPP projects and is exploring opportunities in Latin America; this is expected to add to the pipeline shortly. The proportion of the portfolio invested in the UK is expected to shrink further (31% June 2018) once the Manchester Waste TPS disposal is completed and IEP Phase II remains the only significant UK asset. We have made minor adjustments to our forecasts to reflect the smaller pension surplus but our forecast year-end NAV per share remains 318p (+13% vs FY17). Our projections for the special dividend are also unchanged as we assume the marginal shortfall in realisations versus guidance will be compensated for by a slightly higher pay-out ratio.

Valuation: Prospects not reflected in valuation

JLG is trading at a small premium to its last-published NAV per share of 307p (30 June) but a discount to our projected FY18 figure of 318p/share. Although the outlook for PFI projects in the UK remains uncertain, the UK represents less than 5% of JLG’s investment pipeline and the overall outlook appears encouraging. Given JLG’s track record of value delivery (CAGR in NAV 2014–17 of 15.5% inc DPS) and the prospects for continuing growth in the business, we believe the shares offer an attractive play on the global demand for infrastructure investment.

Exhibit 1: Financial summary

Accounts: IFRS, Yr end: December, GBP: Millions

 

 

2017

2018e

2019e

2020e

Total revenues

 

 

196.7

346.9

310.3

349.2

Cost of sales

 

 

0.0

0.0

0.0

0.0

Gross profit

 

 

196.7

346.9

310.3

349.2

SG&A (expenses)

 

 

(58.6)

(65.8)

(67.1)

(68.5)

Other income/(expense)

 

 

0.0

0.0

0.0

0.0

Depreciation and amortisation

 

 

(0.3)

(0.2)

(0.2)

(0.2)

Reported EBIT

 

 

137.8

280.9

242.9

280.6

Finance income/(expense)

 

 

(11.8)

(12.4)

(13.1)

(16.5)

Other income/(expense)

 

 

0.0

0.0

0.0

0.0

Reported PBT

 

 

126.0

268.4

229.9

264.1

Income tax expense (includes exceptionals)

 

 

1.5

(0.5)

(0.4)

(0.5)

Reported net income

 

 

127.5

267.9

229.5

263.6

Basic average number of shares, m

 

 

367.0

466.9

490.8

490.8

Adjusted EPS (p/share)

 

 

31.9

57.4

46.9

53.2

 

 

 

 

 

 

 

EBITDA

 

 

138.1

281.1

243.1

280.8

Adjusted NAV (p/share)

 

 

281

318

355

399

Adjusted Total DPS (p/share)

 

 

8.9

9.2

9.3

9.4

 

 

 

 

 

 

 

Balance sheet

 

 

 

 

 

 

Property, plant and equipment

 

 

0.1

0.4

0.7

1.0

Goodwill

 

 

0.0

0.0

0.0

0.0

Intangible assets

 

 

0.0

0.0

0.0

0.0

Other non-current assets

 

 

1,346.9

1,613.6

1,861.4

2,136.9

Total non-current assets

 

 

1,347.0

1,614.0

1,862.1

2,137.9

Cash and equivalents

 

 

2.5

28.2

36.8

24.7

Inventories

 

 

0.0

0.0

0.0

0.0

Trade and other receivables

 

 

7.6

14.3

12.8

14.3

Other current assets

 

 

0.0

0.0

0.0

0.0

Total current assets

 

 

10.1

42.5

49.6

39.0

Non-current loans and borrowings

 

 

0.0

75.0

150.0

200.0

Trade and other payables

 

 

0.0

0.0

0.0

0.0

Other non-current liabilities

 

 

41.3

2.2

1.0

1.0

Total non-current liabilities

 

 

41.3

77.2

151.0

201.0

Trade and other payables

 

 

17.3

17.3

17.3

17.3

Current loans and borrowings

 

 

173.2

0.0

0.0

0.0

Other current liabilities

 

 

1.4

1.4

1.4

1.4

Total current liabilities

 

 

191.9

18.7

18.7

18.7

Equity attributable to company

 

 

1,123.9

1,560.9

1,742.3

1,957.5

Non-controlling interest

 

 

0.0

0.0

0.0

0.0

 

 

 

 

 

 

 

Cashflow statement

 

 

 

 

 

 

Profit before tax

 

 

126.0

268.4

229.9

264.1

Net finance expenses

 

 

11.8

12.4

13.1

16.5

Depreciation and amortisation

 

 

0.3

0.2

0.2

0.2

Share based payments

 

 

3.2

0.0

0.0

0.0

Fair value and other adjustments

 

 

(270.6)

(334.2)

(299.0)

(333.2)

Movements in working capital

 

 

2.9

(19.3)

2.8

(1.3)

Cash from operations (CFO)

 

 

(126.4)

(72.9)

(53.5)

(54.2)

Capex

 

 

(0.1)

(0.5)

(0.5)

(0.5)

Cash transf. from inv. Held at FV

 

 

77.4

49.5

57.2

65.9

Portfolio Investments - Disposals

 

 

79.1

(8.5)

(8.4)

(8.4)

Cash used in investing activities (CFIA)

 

 

156.4

40.5

48.3

57.0

Net proceeds from issue of shares

 

 

0.0

210.4

0.0

0.0

Movements in debt

 

 

11.0

(98.2)

75.0

50.0

Other financing activities

 

 

(40.1)

(54.1)

(61.2)

(65.0)

Cash from financing activities (CFF)

 

 

(29.1)

58.1

13.8

(15.0)

Currency translation differences and other

 

 

0.0

0.0

0.0

0.0

Increase/(decrease) in cash and equivalents

 

 

0.9

25.7

8.6

(12.1)

Currency translation differences and other

 

 

0.0

0.0

0.0

0.0

Cash and equivalents at end of period

 

 

2.5

28.2

36.8

24.7

Net (debt) cash

 

 

(170.7)

(46.8)

(113.2)

(175.3)

Movement in net (debt) cash over period

 

 

(10.9)

123.9

(66.4)

(62.1)

Source: Company data, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by John Laing Group and prepared and issued by Edison, in consideration of a fee payable by John Laing Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2018 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a) (11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by John Laing Group and prepared and issued by Edison, in consideration of a fee payable by John Laing Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2018 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a) (11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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