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Research: Industrials
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.
Written by
John Laing Group |
Delivering against guidance |
Pre-close update |
Investment companies |
14 December 2018 |
Share price performance
Business description
Next events
Analyst
John Laing Group is a research client of Edison Investment Research Limited |
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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* |
DPS* |
P/NAV |
P/E |
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
|
|
Since its flotation in 2000, Shore Capital has navigated a number of market cycles, generating operating profits throughout this period. More recently, it has continued to grow its franchise, adding further corporate clients and increasing assets under management in the first half of the current year, helped by investment to support client service. Equity market conditions have become more difficult but this has already been reflected in a weaker share price, which now stands below book value, suggesting significant potential upside on a longer-term view.