Strong investment disposals performance

John Laing Group 12 December 2016 Update

John Laing Group

Strong investment disposals performance

Pre-close update

Investment companies

12 December 2016

Price

276.7p

Market cap

£1,015m

Net debt (£m) as at June 2016

94.4

Shares in issue

366.9m

Free float

100%

Code

JLG

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

0.3

5.0

37.0

Rel (local)

(0.5)

2.9

22.7

52-week high/low

277.0p

200.0p

Business description

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

Next event

FY16 results

March 2017

Analysts

Graeme Moyse

+44 (0)20 3077 5700

Roger Johnston

+44 (0)20 3077 5722

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

John Laing Group’s (JLG) pre-close trading update confirms that the market for both infrastructure investment and project realisations remains strong. We continue to forecast 13% NAV growth in FY16, to 275p, and expect that over time the valuation gap with other infrastructure investment companies will close.

Year end

NAV

(p)

EPS*
(p)

DPS**
(p)

P/NAV
(p)

P/E
(x)

Yield
(%)

12/15

242

27.6

6.9

1.1

10.0

2.5

12/16e

275

51.5

8.0

1.0

5.4

2.9

12/17e

306

39.7

9.0

0.9

7.0

3.3

12/18e

344

46.4

9.2

0.8

6.0

3.3

Note: *EPS (fully diluted) are normalised, excluding amortisation of acquired intangibles, exceptional items, share-based payments. **DPS includes interim, final & special payments.

Realisations and commitments in line with forecasts

JLG announced that, in the 11 months to 30 November 2016, it made total investment commitments of c £181m (FY16 guidance of c £180m) and agreed realisations of £255m, of which £107m are expected to relate to FY16 (Edison FY16e £100m) and constitute the base figure for the calculation of the special dividend. The rest of the proceeds are expected to flow through in FY17. Beyond the strong disposals figure, JLG reported that the overall investment portfolio is performing “in line with expectations” although it expects to “review” the valuations of two of its holdings at the year-end (Manchester Waste and New Royal Adelaide Hospital). While the figures agreed with the pension fund trustees for contributions to the fund for FY17 and beyond are in line with our forecasts (c £25-26m), the deficit of £75m (30 November 2016) was larger than we had anticipated due to the expectation of higher inflation. We forecast that the larger pension deficit will be offset, in NAV terms, by the impact of the expectation of higher inflation on the valuation of the PPP assets. We retain our FY16 NAV forecast of 275p/share although the increased value for the PPP assets (fair value adjustment through the P&L) raises EPS for FY16 to 51.5p (from 42.2p).

Strong macro environment favours infrastructure

The mega trends of population growth, urbanisation and renewable energy continue to provide a favourable backdrop for infrastructure investment. Recent political rhetoric, in both the UK and the US, also appears to favour greater focus on infrastructure investment. JLG confirmed that both the pipeline for investment and the secondary market for disposals (a critical plank in maintaining the yield shift and monetising the value of primary projects) remain buoyant.

Valuation: Room for further appreciation

While the shares have performed strongly over the last six months, JLG still trades at a discount to both our forecast NAV and other infrastructure investment companies, which are currently valued at a c 16% premium to historical NAV. As JLG continues to demonstrate the strength of its business model, with its greater emphasis on primary investment and the continuing growth in its NAV (above peer group averages), we would expect this gap to close.

Exhibit 1: Financial summary

£m

2014

2015

2016e

2017e

2018e

2019e

2020e

31-December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

206.6

167.6

258.3

210.0

233.7

259.9

275.1

Cost of Sales

(0.4)

(0.1)

(0.5)

(0.5)

(0.5)

(0.5)

(0.5)

Gross Profit

206.2

167.5

257.8

209.5

233.2

259.4

274.6

EBITDA

 

 

147.1

113.4

206.3

161.2

183.9

209.1

223.3

Operating Profit (before SBP, amort. and except.)

 

 

146.1

112.7

205.5

160.4

183.1

208.3

222.5

Intangible Amortisation

(0.5)

(0.5)

(0.3)

0.0

0.0

0.0

0.0

Share based payments

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

4.5

0.0

0.0

0.0

0.0

Other

5.7

0.0

0.0

0.0

0.0

0.0

0.0

Operating Profit

151.3

112.2

209.7

160.4

183.1

208.3

222.5

Net Interest

(25.7)

(11.3)

(14.5)

(13.8)

(11.8)

(12.6)

(13.9)

Profit Before Tax (norm)

 

 

120.4

101.4

190.9

146.6

171.2

195.7

208.6

Profit Before Tax (FRS 3)

 

 

125.6

100.9

195.1

146.6

171.2

195.7

208.6

Tax

0.2

(2.1)

(1.5)

0.0

0.0

0.0

0.0

Profit After Tax (norm)

120.6

99.3

189.4

146.6

171.2

195.7

208.6

Profit After Tax (FRS 3)

125.8

98.8

193.6

146.6

171.2

195.7

208.6

Average Number of Shares Outstanding (m)

300.0

358.3

366.9

366.9

366.9

366.9

366.9

EPS - normalised (p)

 

 

40.2

27.7

51.6

39.9

46.7

53.3

56.9

EPS - normalised and fully diluted (p)

 

 

40.2

27.6

51.5

39.7

46.4

53.1

56.6

EPS - (IFRS) (p)

 

 

41.9

27.6

52.8

39.9

46.7

53.3

56.9

Dividend per share (p)

0.0

6.9

8.0

9.0

9.2

9.4

9.6

Dividend Cover (normalised and fully diluted) (x)

N/A

4.00

6.43

4.41

5.04

5.66

5.91

Gross Margin (%)

99.8

99.9

99.8

99.8

99.8

99.8

99.8

EBITDA Margin (%)

71.2

67.7

79.9

76.8

78.7

80.5

81.2

Operating Margin (before GW and except.) (%)

70.7

67.2

79.6

76.4

78.4

80.2

80.9

 

 

 

 

BALANCE SHEET

 

 

 

 

Fixed Assets

 

 

861.6

967.9

1,059.1

1,193.7

1,345.1

1,515.4

1,705.6

Intangible Assets

0.8

0.2

0.0

0.0

0.0

0.0

0.0

Tangible Assets

1.1

1.0

0.7

0.9

1.1

1.3

1.5

Investments & Other

859.7

966.7

1,058.4

1,192.8

1,344.0

1,514.1

1,704.1

Current Assets

 

 

11.4

9.4

266.1

129.2

141.2

154.9

177.2

Stocks

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Debtors

9.2

8.3

12.7

10.4

11.5

12.8

13.5

Cash

2.1

1.1

253.4

118.8

129.7

142.1

163.6

Other

0.1

0.0

0.0

0.0

0.0

0.0

0.0

Current Liabilities

 

 

(35.3)

(41.4)

(134.9)

(34.9)

(34.9)

(34.9)

(34.9)

Creditors & Other

(35.3)

(26.5)

(34.9)

(34.9)

(34.9)

(34.9)

(34.9)

Short term borrowings

0.0

(14.9)

(100.0)

0.0

0.0

0.0

0.0

Long Term Liabilities

 

 

(187.9)

(46.3)

(182.7)

(163.6)

(189.1)

(211.5)

(250.1)

Long term borrowings

0.0

0.0

(100.0)

(100.0)

(150.0)

(200.0)

(250.0)

Other long term liabilities

(187.9)

(46.3)

(82.7)

(63.6)

(39.1)

(11.5)

(0.1)

Net Assets

 

 

649.8

889.6

1,007.6

1,124.4

1,262.3

1,423.9

1,597.8

NAV per share (p)

 

 

 

242

275

306

344

388

435

CASH FLOW

Operating Cash Flow

 

 

(88.0)

(14.3)

23.4

(41.4)

(49.3)

(53.3)

(49.6)

Net Interest

(9.0)

(13.7)

(14.5)

(13.8)

(11.8)

(12.6)

(13.9)

Tax

0.0

0.0

(1.5)

0.0

0.0

0.0

0.0

Capex

0.0

(0.6)

(1.0)

(1.0)

(1.0)

(1.0)

(1.0)

Acquisitions/disposals

46.7

(56.2)

(52.8)

1.2

0.0

0.0

0.0

Financing

56.1

124.7

0.0

0.0

0.0

0.0

0.0

Dividends

0.0

(5.9)

(26.3)

(29.7)

(33.3)

(34.1)

(34.7)

Cash Transferred from investments held at FV

0.0

(49.9)

140.0

50.1

56.3

63.4

70.7

Net Cash Flow

5.8

(15.9)

67.2

(34.6)

(39.1)

(37.6)

(28.5)

Opening net debt/(cash)

 

 

3.7

(2.1)

13.8

(53.4)

(18.8)

20.3

57.9

HP finance leases initiated

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Other

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Closing net debt/(cash)

 

 

(2.1)

13.8

(53.4)

(18.8)

20.3

57.9

86.4

Source: John Laing Group accounts, Edison Investment Research

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. 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 Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 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 Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. 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 2016. “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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. 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 Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 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 Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. 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 2016. “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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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