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Research: Industrials
John Laing Group’s (JLG) trading update and recent disposal of a wind farm provided year-to-date figures for investment commitments and realisations. The figures confirmed the strength of the underlying infrastructure project market and highlighted the increased level of activity within the business. We have revised our forecasts and now expect a special dividend payment of 5.3p/share (6.5% of £299m), offering a yield on the final and special payments combined, of c 3.3%. We expect further NAV growth in FY17 and beyond, and believe JLG’s rating is undemanding.
Written by
John Laing Group |
Growth in buoyant markets |
Trading update |
Investment companies |
13 December 2017 |
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) trading update and recent disposal of a wind farm provided year-to-date figures for investment commitments and realisations. The figures confirmed the strength of the underlying infrastructure project market and highlighted the increased level of activity within the business. We have revised our forecasts and now expect a special dividend payment of 5.3p/share (6.5% of £299m), offering a yield on the final and special payments combined, of c 3.3%. We expect further NAV growth in FY17 and beyond, and believe JLG’s rating is undemanding.
Year end |
NAV |
EPS* |
DPS** |
P/NAV |
P/E |
Yield |
12/15 |
242 |
27.6 |
6.90 |
1.2 |
10.2 |
2.5 |
12/16 |
277 |
51.9 |
8.15 |
1.0 |
5.4 |
2.9 |
12/17e |
302 |
33.3 |
11.01 |
0.9 |
8.4 |
3.9 |
12/18e |
330 |
39.4 |
9.98 |
0.9 |
7.1 |
3.6 |
Note: *EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. ** DPS includes interim, final and special payments
Increased investment realisations and commitments
So far in FY17, JLG has completed realisations of £299m (previous guidance £200m) and made investment commitments of £340m (guidance of £200m). We have revised our financial forecasts for FY17 to reflect these updated figures and a small reduction in the pension deficit (from £30m to £22m). Due to the increased level of realisations, we have increased the ‘special’ element (based on 6.5% of £299m) of our forecast for JLG’s DPS for FY17. JLG has guided towards a ‘special’ payment of 5-10% of realisations and in previous years has paid c 7.5%. We assume, given the scale of disposals in FY17, JLG may pay a more conservative percentage of realisations, and now forecast final and special DPS payments of 3.81p and 5.30p, respectively. Our forecast for investment and realisations in FY18 is unchanged (£200m), although with an investment pipeline of c £2bn and commitments running at £350m, our assumptions for FY18 face upward pressure.
Continuing strong market for infrastructure projects
The increased pace of realisations and investment commitments underlines the strength of the global market for infrastructure investment, despite reduced activity levels in the UK PPP market. JLG has evolved significantly since its flotation, when it was largely a UK-focused PPP investor, and the group is now increasingly well diversified geographically and by asset type. We estimate that following the recent disposals of UK assets to JLIF and JLEN and the investment in the US Transform 66 P3 managed-lane projects (9 November 2017), less than 25% of the portfolio remains invested in the UK. With c 10% of the £2bn investment pipeline focused on the UK, we expect this proportion to decline further.
Valuation: Potential valuation upside
JLG (yield of c 3.3% special + final DPS) is currently trading at a small discount to its last reported NAV of 284p/share and a c 9% discount to our forecast FY17 NAV of 302p/share. We believe the continuing discount to NAV and the valuations of its peers is unjustified by the strength of the infrastructure markets in which JLG operates and the track record it has established in delivering value.
Exhibit 1: Financial summary
Accounts: IFRS, Year-end: December, £m |
|
|
2015 |
2016 |
2017e |
2018e |
2019e |
2020e |
Profit & loss |
||||||||
Total revenues |
|
|
167.6 |
260.8 |
189.9 |
215.1 |
238.2 |
249.5 |
Cost of sales |
|
|
(0.1) |
0.0 |
(0.5) |
(0.5) |
(0.5) |
(0.5) |
Gross profit |
|
|
167.5 |
260.8 |
189.4 |
214.6 |
237.7 |
249.0 |
SG&A (expenses) |
|
|
(54.1) |
(57.6) |
(55.2) |
(56.3) |
(57.5) |
(58.6) |
Other income/(expense) |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Depreciation and amortisation |
|
|
(1.2) |
(0.8) |
(0.8) |
(0.8) |
(0.8) |
(0.8) |
Reported EBIT |
|
|
112.2 |
202.4 |
133.4 |
157.5 |
179.5 |
189.6 |
Finance income/(expense) |
|
|
(11.3) |
(10.3) |
(11.3) |
(12.8) |
(15.0) |
(17.2) |
Other income/(expense) |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Reported PBT |
|
|
100.9 |
192.1 |
122.1 |
144.7 |
164.5 |
172.4 |
Income tax expense (includes exceptionals) |
|
|
(2.1) |
(1.8) |
0.0 |
0.0 |
0.0 |
0.0 |
Reported net income |
|
|
104.5 |
190.3 |
122.1 |
144.7 |
164.5 |
172.4 |
Basic average number of shares, m |
|
|
358.3 |
366.9 |
366.9 |
366.9 |
366.9 |
366.9 |
Basic EPS |
|
|
27.6 |
51.9 |
33.3 |
39.4 |
44.8 |
47.0 |
|
|
|
|
|
|
|
|
|
EBITDA |
|
|
113.4 |
203.2 |
134.2 |
158.3 |
180.3 |
190.4 |
NAV (p/share) |
|
|
242 |
277 |
302 |
330 |
365 |
402 |
Total DPS (p) |
|
|
6.90 |
8.15 |
11.01 |
9.98 |
10.15 |
10.33 |
|
|
|
|
|
|
|
|
|
Balance sheet |
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
1.0 |
0.3 |
0.5 |
0.7 |
0.9 |
1.1 |
Goodwill |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Intangible assets |
|
|
0.2 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Other non-current assets |
|
|
966.7 |
1,258.5 |
1,380.7 |
1,530.6 |
1,722.5 |
1,916.5 |
Total non-current assets |
|
|
967.9 |
1,258.8 |
1,381.2 |
1,531.3 |
1,723.4 |
1,917.6 |
Cash and equivalents |
|
|
1.1 |
1.6 |
1.0 |
1.0 |
1.0 |
1.0 |
Inventories |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Trade and other receivables |
|
|
8.3 |
7.4 |
9.4 |
10.6 |
11.7 |
12.3 |
Other current assets |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Total current assets |
|
|
9.4 |
9.0 |
10.4 |
11.6 |
12.7 |
13.3 |
Non-current loans and borrowings |
|
|
0.0 |
0.0 |
0.0 |
250.0 |
350.0 |
400.0 |
Trade and other payables |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Other non-current liabilities |
|
|
46.3 |
70.8 |
23.3 |
1.5 |
1.5 |
1.5 |
Total non-current liabilities |
|
|
46.3 |
70.8 |
23.3 |
251.5 |
351.5 |
401.5 |
Trade and other payables |
|
|
19.6 |
14.7 |
12.7 |
12.7 |
12.7 |
12.7 |
Current loans and borrowings |
|
|
14.9 |
161.4 |
245.5 |
64.6 |
30.3 |
40.1 |
Other current liabilities |
|
|
6.9 |
4.1 |
1.4 |
1.4 |
1.4 |
1.4 |
Total current liabilities |
|
|
41.4 |
180.2 |
259.6 |
78.7 |
44.4 |
54.2 |
Equity attributable to company |
|
|
889.6 |
1,016.8 |
1,108.7 |
1,212.7 |
1,340.3 |
1,475.1 |
Non-controlling interest |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|
|
|
|
|
|
|
|
|
Cash flow statement |
|
|
|
|
|
|
|
|
Profit before tax |
|
|
100.9 |
192.1 |
122.1 |
144.7 |
164.5 |
172.4 |
Net finance expenses |
|
|
11.3 |
10.3 |
11.3 |
12.8 |
15.0 |
17.2 |
Depreciation and amortisation |
|
|
1.2 |
0.8 |
0.8 |
0.8 |
0.8 |
0.8 |
Share based payments |
|
|
0.7 |
2.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Fair value and other adjustments |
|
|
(124.8) |
(78.4) |
(331.7) |
(212.1) |
(237.2) |
(243.8) |
Movements in working capital |
|
|
(3.2) |
(2.3) |
(29.2) |
(0.7) |
(0.5) |
(0.4) |
Cash from operations (CFO) |
|
|
(13.9) |
124.5 |
(226.7) |
(54.4) |
(57.4) |
(53.8) |
Capex |
|
|
(0.6) |
(0.1) |
(1.0) |
(1.0) |
(1.0) |
(1.0) |
Cash transf. from inv. Held at FV |
|
|
(54.0) |
(73.4) |
35.5 |
39.8 |
44.7 |
49.7 |
Portfolio Investments - Disposals |
|
|
(56.6) |
(161.6) |
149.0 |
0.0 |
0.0 |
0.0 |
Cash used in investing activities (CFIA) |
|
|
(111.2) |
(235.1) |
183.5 |
38.8 |
43.7 |
48.7 |
Net proceeds from issue of shares |
|
|
124.7 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Movements in debt |
|
|
19.0 |
146.0 |
84.1 |
69.1 |
65.7 |
59.8 |
Other financing activities |
|
|
(19.6) |
(35.1) |
(41.5) |
(53.5) |
(51.9) |
(54.7) |
Cash from financing activities (CFF) |
|
|
124.1 |
110.9 |
42.6 |
15.6 |
13.8 |
5.1 |
Currency translation differences and other |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Increase/(decrease) in cash and equivalents |
|
|
(1.0) |
0.3 |
(0.6) |
(0.0) |
(0.0) |
(0.0) |
Currency translation differences and other |
|
|
(0.1) |
0.2 |
0.0 |
0.0 |
0.0 |
0.0 |
Cash and equivalents at end of period |
|
|
1.1 |
1.6 |
1.0 |
1.0 |
1.0 |
1.0 |
Net (debt) cash |
|
|
(13.8) |
(159.8) |
(244.5) |
(313.6) |
(379.3) |
(439.1) |
Movement in net (debt) cash over period |
|
|
(15.9) |
(146.0) |
(84.7) |
(69.1) |
(65.7) |
(59.8) |
Source: Company accounts, Edison Investment Research
|
|
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