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Research: Industrials
John Laing Group
Written by
John Laing Group |
Strong investment disposals performance |
Pre-close update |
Investment companies |
12 December 2016 |
Share price performance
Business description
Next event
Analysts
John Laing Group is a research client of Edison Investment Research Limited |
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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* |
DPS** |
P/NAV |
P/E |
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
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