Investments markets remain strong

John Laing Group 4 July 2018 Update
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John Laing Group

Investments markets remain strong

Pre-close trading update

Investment companies

4 July 2018

Price

274.2p

Market cap

£1,342m

Net debt (£m) at end FY17

170.7

Shares in issue

489.3m

Free float

100%

Code

JLG

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(3.4)

1.9

(0.4)

Rel (local)

(2.0)

(5.3)

(4.0)

52-week high/low

291.7p

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

Interim results

23 August 2018

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) pre-close statement maintained guidance for FY18 investment commitments and realisations at £250m. The investment pipeline and the market for secondary assets are reported to be “strong” and the portfolio continues to become increasingly diversified geographically. With a strong market background and the financial strength to exploit market opportunities, we see scope for JLG to close the valuation gap to NAV and its peers.

Year end

NAV
(p)

EPS*
(p)

DPS**
(p)

P/NAV
(x)

P/E
(x)

Yield
(%)

12/17

281

31.9

8.9

1.0

8.6

3.2

12/18e

303

40.6

9.2

0.9

6.8

3.4

12/19e

338

44.4

9.4

0.8

6.2

3.4

Note: *EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **DPS includes interim, final and special payments. The figures have been adjusted to reflect the impact of the rights issue.

Guidance maintained

JLG’s pre-close statement maintained guidance for FY18 investment commitments and realisations at £250m. Realisations are well on the way to achieving this total and have so far totalled £241.5m (including £232.0m for IEP Phase 1). Commitments have been running at a slower pace in H1, but JLG maintains a strong investment pipeline and expects a pick-up in H2. Encouragingly, the market for secondary assets also remains strong. The deficit on the pension fund (according to IAS19), which stood £35.2m at the year-end, had moved to a surplus of £19.8m by 31 May 2018, thanks to a reduction in the discount rate used (linked to yield on corporate bonds) and a contribution of £26.5m (Edison FY18e: -£7.4m). Future contributions, which are based on the actuarial deficit and are currently scheduled to run at a similar level over the next few years, will only be revisited in light of the next actuarial valuation due next March. Our forecasts remain unchanged.

Continued internationalisation of portfolio

The trend of the last two years, which has seen JLG’s portfolio become less focused on the UK, continues. Both realisations achieved in H1 (Lambeth Housing and IEP Phase I) were UK investments, while new investment commitments were split between Europe and the US. Of JLG’s 13, either preferred or shortlisted PPP projects, 10 are located in North America and three in Europe. Of the total pipeline, less than 5% is said to be UK focused. Given the recent disposals, we would estimate less than 20% of the total portfolio to be UK related.

Valuation: Discount offers opportunity

Although JLG’s shares have recovered some of the ground lost since last autumn following the collapse of Carillion, Labour’s announced hostility to new PPP projects and the launch of the rights issue, they remain at a discount to the last reported NAV of 281p (adjusted for the rights issue). The shares trade at a c 4% discount to NAV, compared to an average peer group premium of 4%, offering an attractive investment opportunity.

Exhibit 1: Financial summary

Accounts: IFRS, Year-end: December, £m

 

 

2017

2018e

2019e

2020e

Total revenues

 

 

196.7

260.3

289.8

323.0

Cost of sales

 

 

0.0

0.0

0.0

0.0

Gross profit

 

 

196.7

260.3

289.8

323.0

SG&A (expenses)

 

 

(58.6)

(59.9)

(61.1)

(62.3)

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

200.3

228.6

260.5

Finance income/(expense)

 

 

(11.8)

(10.7)

(11.2)

(14.0)

Other income/(expense)

 

 

0.0

0.0

0.0

0.0

Reported PBT

 

 

126.0

189.6

217.4

246.5

Income tax expense (includes exceptionals)

 

 

1.5

0.0

0.0

0.0

Reported net income

 

 

127.5

189.6

217.4

246.5

Basic average number of shares, m

 

 

367.0

466.9

489.3

489.3

Adjusted EPS (p/share)

 

 

31.9

40.6

44.4

49.9

EBITDA

 

 

138.1

200.5

228.8

260.7

Adjusted NAV (p/share)

 

 

281

303

338

378

Adjusted Total DPS (p/share)

 

 

8.9

9.2

9.4

9.6

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

1,522.5

1,733.0

1,980.3

Total non-current assets

 

 

1,347.0

1,522.9

1,733.7

1,981.3

Cash and equivalents

 

 

2.5

58.5

75.5

74.1

Inventories

 

 

0.0

0.0

0.0

0.0

Trade and other receivables

 

 

7.6

10.7

11.9

13.2

Other current assets

 

 

0.0

0.0

0.0

0.0

Total current assets

 

 

10.1

69.2

87.4

87.4

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

16.4

1.0

1.0

Total non-current liabilities

 

 

41.3

91.4

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

1,482.1

1,651.4

1,849.0

Non-controlling interest

 

 

0.0

0.0

0.0

0.0

CASH FLOW STATEMENT

 

 

 

 

 

 

Profit before tax

 

 

126.0

189.6

217.4

246.5

Net finance expenses

 

 

11.8

10.7

11.2

14.0

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)

(254.8)

(286.3)

(314.6)

Movements in working capital

 

 

2.9

(1.5)

(0.1)

(0.8)

Cash from operations (CFO)

 

 

(126.4)

(55.8)

(57.6)

(54.7)

Capex

 

 

(0.1)

(0.5)

(0.5)

(0.5)

Cash transf. from inv. Held at FV

 

 

77.4

52.6

59.3

66.8

Portfolio Investments - Disposals

 

 

79.1

0.1

0.1

0.1

Cash used in investing activities (CFIA)

 

 

156.4

52.2

58.9

66.5

Net proceeds from issue of shares

 

 

0.0

210.2

0.0

0.0

Movements in debt

 

 

11.0

(98.2)

75.0

50.0

Other financing activities

 

 

(40.1)

(52.4)

(59.4)

(63.1)

Cash from financing activities (CFF)

 

 

(29.1)

59.6

15.6

(13.1)

Currency translation differences and other

 

 

0.0

0.0

0.0

0.0

Increase/(decrease) in cash and equivalents

 

 

0.9

56.0

16.9

(1.3)

Currency translation differences and other

 

 

0.0

0.0

0.0

0.0

Cash and equivalents at end of period

 

 

2.5

58.5

75.5

74.1

Net (debt) cash

 

 

(170.7)

(16.5)

(74.5)

(125.9)

Movement in net (debt) cash over period

 

 

(10.9)

154.2

(58.1)

(51.3)

Source: Company accounts, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by John Laing Group and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. 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.

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

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by John Laing Group and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. 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.

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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