Steady as she goes

John Laing Group 3 November 2020 Update
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John Laing Group

Steady as she goes

Q3 trading statement

Investment companies

3 November 2020

Price

281p

Market cap

£1,385m

Net debt (£m) at H120

105 (re-presented accounts), 431 (Edison calculation based on statutory accounts)

Shares in issue

493m

Free float

99%

Code

JLG

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(7.5)

(2.2)

(23.6)

Rel (local)

(4.1)

2.9

(3.5)

52-week high/low

401p

274p

Business description

John Laing Group is an originator, active investor in, and manager of, greenfield infrastructure projects. It operates internationally and its business currently addresses PPP (Public, Private Partnership) and renewable energy segments.

Next events

Analyst day

November 2020

Analyst

Dan Gardiner

+44 (0)20 3077 5700

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

After negative surprises in its last three reports, John Laing Group’s (JLG) Q3 update brought welcome good news. NAV per share rose 2% to 314p as an FX headwind and pension charges failed to offset another strong PPP performance. The performance of the renewable portfolio, now just 22% of the total, was stable. JLG retains its guidance for ‘modest’ underlying NAV growth in H2 and we nudge up our NAV per share forecast from 308p to 310p. The share price stands at a 9% discount to FY20e NAV per share.

Year end

NAV/share (p)

EPS*
(p)

DPS
(p)

P/NAV
(x)

P/E
(x)

Yield
(%)

12/18

323

63.1

9.5

0.9

4.5

3.4

12/19

337

20.4

9.5

0.8

13.8

3.4

12/20e

310

(12.3)

8.2

0.9

N/A

2.9

12/21e

315

3.6

9.8

0.9

78.5

3.5

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

Q3: A further solid PPP performance

Headline NAV per share rose 2% from 309p to 314p in Q3. Underlying NAV growth was 4% reflecting a good performance of the PPP portfolio driven predominantly by the gain from the agreed sale of its stake in IEP (see Exhibit 1). The performance of the renewable portfolio was stable with a further write down of the biomass facilities offset by the disposal of wind farm assets for a small uplift to book value (see Sale of its Australian wind farm assets). This good underlying performance was partially offset by FX and movement in the pension (-6p and -2p per share respectively).

Significant realisations, guidance unchanged

JLG’s Q3 was dominated by two significant realisations: the sale of its 30% stake in IEP East for up to £421m (a 22% uplift to book value at 30 June) and the sale of its Australian wind farm portfolio for £157m (a 1.5x money multiple). This last disposal represents material progress on its strategy to exit renewables, which now account for just 22% of the portfolio value. While there were no disclosed investments, the pipeline remains healthy with 10 short-listed/preferred bidder positions (unchanged). The company confirmed its guidance for modest underlying NAV growth in H2 (ie excluding dividend, FX and other external factors).

Forecasts: Nudging up FY20e NAV per share to 310p

We lift our FY20 NAV per share forecast 2p to 310p to reflect better than expected Q3 realisations (+5p), partially offset by an adverse pension movement and changes to other assumptions. Our forecast implies 320p before dividends (5% y-o-y growth). Our FY21 headline NAV/share forecast of 315p is unchanged.

Valuation: 9% discount to FY20e NAV per share

At 281p, JLG trades at a 9% discount to FY20e NAV/share – close to the bottom of its historical range. Yet, as the sale of IEP East highlights, its core PPP portfolio continues to generate value. The sale of its Australian wind farm assets lowers its renewables exposure and suggests valuations have been reset to conservative levels. New CEO Ben Loomes will set out his strategy for JLG, including how a new growth engine can complement its existing PPP strengths, on 25 November.

The story of Q3

NAV per share growth driven by PPP

Underlying net asset value (NAV) per share rose 4% during Q3 from 309p to 322p, primarily driven by the sale of IEP East for up to £421m, a money multiple of over 5.8x and a 22% premium to its 30 June valuation. After allowing for disposal costs we estimate that this disposal boosted NAV per share by 14p (see Exhibit 1). However, the gain in PPP was not exclusively driven by the IEP East sale. Assuming P&L charges of -4p and a stable overall performance of the renewable portfolio (as per company commentary), we estimate that there was a 3p positive contribution to NAV from the public private partnership (PPP) portfolio excluding IEP East.

Exhibit 1: The estimated contribution of major drivers of NAV per share progression in Q3

Source: John Laing Group data plus Edison Investment Research estimates * Estimated based on assumptions to IEP East proceeds and P&L charges. ** Estimate of net gain for IEP East excludes gain from interest (£15m) and £3m of transaction costs. *** Estimated P&L charge based on H120 charge halved.

Modest increase to FY20 NAV per share forecast

We raise our FY20 NAV per share forecast 2p from 308p to 310p, to reflect Q3 realisations (+5p) and foreign exchange (+1p) partially offset by pension costs (-2p) and minor changes to other assumptions (-2p). Our forecast implies an NAV per share of 320p before dividends. On an underlying basis, ie excluding the dividend and the negative impact of 8p of FX and pension valuation, FY20e NAV per share is 328p, implying 3% growth in H2 (in line with company guidance of ‘modest’ underlying growth) and a 5% y-o-y decline.

Exhibit 2: Changes to FY20 Edison NAV per share forecast

Source: John Laing Group data, Edison Investment Research

Exhibit 3: Financial summary

Accounts: IFRS; year-end: 31 December; £m

 

 

2017

2018

2019

2020e

2021e

Income statement

Total revenues

 

 

196.7

397.0

179.0

18.3

96.8

Cost of sales

 

 

0.0

0.0

0.0

0.0

0.0

Gross profit

 

 

196.7

397.0

179.0

18.4

96.8

SG&A (expenses)

 

 

(58.9)

(66.0)

(68.0)

(65.0)

(66.3)

Other income/(expense)

 

 

0.0

(21.0)

0.0

0.0

0.0

Depreciation and amortisation

 

 

0.0

0.0

0.0

0.0

0.0

Reported EBIT

 

 

137.8

310.0

111.0

(46.6)

30.5

Finance income/(expense)

 

 

(11.8)

(14.0)

(11.0)

(14.8)

(12.7)

Other income/(expense)

 

 

0.0

0.0

0.0

0.0

0.0

Reported PBT

 

 

126.0

296.0

100.0

(61.4)

17.9

Income tax expense (includes exceptionals)

 

 

1.5

0.0

0.0

0.0

0.0

Reported net income

 

 

127.5

296.0

100.0

(61.4)

17.9

Basic average number of shares, m

 

 

367.0

466.9

491.9

492.7

494.4

Adjusted EPS (p)

 

 

31.9

63.1

20.4

(12.3)

3.6

 

 

 

 

 

 

 

 

EBITDA

 

 

137.8

331.0

111.0

(46.6)

30.5

Adjusted NAV (p/share)

 

 

281

323

337

310

315

Adjusted Total DPS (p)

 

 

8.9

9.5

9.5

8.2

9.8

 

 

 

 

 

 

 

 

Balance sheet

 

 

 

 

 

 

 

Property, plant and equipment

 

 

0.1

0.0

0.0

0.0

0.0

Goodwill

 

 

0.0

0.0

0.0

0.0

0.0

Intangible assets

 

 

0.0

0.0

0.0

0.0

0.0

Other non-current assets

 

 

1,346.9

1,700.0

1,914.0

1,712.3

1,687.7

Total non-current assets

 

 

1,347.0

1,700.0

1,914.0

1,712.3

1,687.7

Cash and equivalents

 

 

2.5

5.5

2.0

380.9

408.0

Inventories

 

 

0.0

0.0

0.0

0.0

0.0

Trade and other receivables

 

 

7.6

8.0

6.0

6.0

6.0

Other current assets

 

 

0.0

0.0

0.0

0.0

0.0

Total current assets

 

 

10.1

14.0

8.0

386.9

414.0

Non-current loans and borrowings

 

 

0.0

0.0

4.0

4.0

4.0

Trade and other payables

 

 

0.0

0.0

0.0

0.0

0.0

Other non-current liabilities

 

 

41.3

42.0

9.0

9.5

9.5

Total non-current liabilities

 

 

41.3

42.0

13.0

25.5

13.5

Trade and other payables

 

 

17.3

20.0

15.0

15.0

15.0

Current loans and borrowings

 

 

173.2

66.0

236.0

515.0

515.0

Other current liabilities

 

 

1.4

0.0

0.0

12.0

0.0

Total current liabilities

 

 

191.9

86.0

251.0

542.0

530.0

Equity attributable to company

 

 

1,123.9

1,586.0

1,658.0

1,531.6

1,558.2

Non-controlling interest

 

 

0.0

0.0

0.0

0.0

0.0

 

 

 

 

 

 

 

 

Cashflow statement

 

 

 

 

 

 

 

Profit before tax

 

 

126.0

310.0

111.0

(46.6)

30.5

Net finance expenses

 

 

11.8

0.0

0.0

0.0

0.0

Depreciation and amortisation

 

 

0.0

0.0

0.0

0.0

0.0

Share based payments

 

 

3.0

3.0

4.0

0.0

0.0

Fair value and other adjustments

 

 

(189.7)

(369.0)

(174.0)

(35.2)

(110.5)

Movements in working capital

 

 

1.6

2.0

(2.0)

1.3

(0.9)

Cash from operations (CFO)

 

 

(47.3)

(54.0)

(61.0)

(80.5)

(80.9)

Capex

 

 

(0.1)

0.0

0.0

(0.1)

(0.1)

Cash transf. from inv. Held at FV

 

 

(1.7)

58.0

74.0

56.8

36.0

Portfolio Investments - Disposals

 

 

79.1

(46.0)

(124.0)

190.0

100.0

Cash used in investing activities (CFIA)

 

 

77.3

12.0

(50.0)

246.7

135.9

Net proceeds from issue of shares

 

 

0.0

210.0

(4.0)

0.0

0.0

Movements in debt

 

 

11.0

(106.0)

169.0

279.0

0.0

Other financing activities

 

 

(40.1)

(59.0)

(58.0)

(51.2)

(53.6)

Cash from financing activities (CFF)

 

 

(29.1)

45.0

107.0

212.7

(27.9)

Currency translation differences and other

 

 

0.0

0.0

0.0

0.0

0.0

Increase/(decrease) in cash and equivalents

 

 

0.9

3.0

(4.0)

378.9

27.1

Currency translation differences and other

 

 

0.0

0.0

0.0

0.0

0.0

Cash and equivalents at end of period

 

 

2.5

5.5

2.0

380.9

408.0

Net (debt) cash

 

 

(170.7)

(60.0)

(238.0)

(138.1)

(111.0)

Movement in net (debt) cash over period

 

 

(10.9)

110.7

(178.0)

99.9

27.1

Source: Company accounts, Edison Investment Research (based on JLG’s statutory accounts)


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 research department of Edison 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 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). 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

This document is prepared and provided by Edison 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.

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.

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

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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 research department of Edison 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 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). 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

This document is prepared and provided by Edison 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.

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.

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

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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