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Research: Industrials
John Laing Group (JLG) stands at a c 6% premium to its FY19 NAV of 337p per share compared to peer-group NAV premiums of over 10%. This appears modest for a business that, since its 2015 IPO, has delivered 14% compound annual growth in NAV per share (including dividends paid), which we expect to continue to grow at c 10% pa (including dividends). Successful disposal of its renewable assets could be a catalyst for share price appreciation.
Written by
John Laing Group |
NAV growth despite challenges |
FY19 results |
Investment companies |
5 March 2020 |
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 (JLG) stands at a c 6% premium to its FY19 NAV of 337p per share compared to peer-group NAV premiums of over 10%. This appears modest for a business that, since its 2015 IPO, has delivered 14% compound annual growth in NAV per share (including dividends paid), which we expect to continue to grow at c 10% pa (including dividends). Successful disposal of its renewable assets could be a catalyst for share price appreciation.
Year end |
NAV/share (p) |
EPS* |
DPS |
P/NAV |
P/E |
Yield |
12/18 |
323 |
63.1 |
9.5 |
1.11 |
5.7 |
2.7 |
12/19 |
337 |
20.4 |
9.5 |
1.06 |
17.5 |
2.7 |
12/20e |
359 |
30.0 |
10.5 |
0.99 |
11.9 |
2.9 |
12/21e |
395 |
46.6 |
13.1 |
0.90 |
7.7 |
3.7 |
Note: *EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Growth despite headwinds
JLG reported an FY19 NAV of 337p/share, up 14p (+4.3%) versus FY18’s NAV per share of 323p. The FY19 figure of 337p is struck after the adverse impact of foreign exchange movements that reduced NAV growth by 11p/share and lower forecast power prices, wind yields and transmission related issues, which reduced the NAV by a further 31p/share. Before dividends and currency movements, JLG’s NAV per share rose by 10.7%. Investment realisations and commitments totalled £143m (FY18: £296m) and £184m (FY18: £302m), respectively, with the lower realisations figure affecting the special element of the final dividend, which fell from 4.10p to 3.98p. The overall DPS for FY19 remained unchanged at 9.5p/share.
Outlook of continuing growth
The FY19 project pipeline grew significantly (£3.2bn versus £2.4bn in FY18) despite the decision not to pursue potential stand-alone wind and solar projects. The growth is said to have been facilitated by a deepening of relationships with partners and a buoyant market for public-private partnership (PPP) projects in North and Latin America. Although the macro environment for investment in PPP remains buoyant, the demand for operational renewable assets also remains strong, despite more pessimistic long-term power price forecasts produced by consultants. Although the FY19 figures for investment commitments and realisations fell below the required run rate, JLG believes it remains on course for its target for investment commitments of c £1bn for 2019–21 and for realisations to be broadly in line with investment commitments. A disposal of renewable assets at book value, or above, would be supportive of JLG’s valuation, as would news on a replacement for the departing CEO, Olivier Brousse.
Valuation: Discount to peers
JLG’s share price has rallied modestly following the results, but, at 357p/share, stands at only a c 6% premium to its NAV per share of 337p, compared to a peer group premium of c 10–12%. We believe JLG’s rating is modest for a company that is capable, based on our revised forecasts, of delivering NAV per share growth, before dividends, of c 8% over the next two years (previously 9% FY18–20).
Exhibit 1: Financial summary
Accounts: IFRS; year end: 31 December; £m |
|
|
2018 |
2019 |
2020e |
2021e |
Profit & loss |
||||||
Total revenues |
|
|
397 |
179 |
235 |
316 |
Cost of sales |
|
|
0 |
0 |
0 |
0 |
Gross profit |
|
|
397 |
179 |
235 |
316 |
SG&A (expenses) |
|
|
(66) |
(68) |
(72) |
(73) |
Other income/(expense) |
|
|
(21) |
0 |
0 |
0 |
Depreciation and amortisation |
|
|
0 |
0 |
0 |
0 |
Reported EBIT |
|
|
310 |
111 |
163 |
243 |
Finance income/(expense) |
|
|
(14) |
(11) |
(14) |
(11) |
Other income/(expense) |
|
|
0 |
0 |
0 |
0 |
Reported PBT |
|
|
296 |
100 |
149 |
232 |
Income tax expense (includes exceptionals) |
|
|
0 |
0 |
0 |
0 |
Reported net income |
|
|
296 |
100 |
149 |
232 |
Basic average number of shares, m |
|
|
469.5 |
491.5 |
492.3 |
493.2 |
Adjusted EPS (p/share) |
|
|
63.1 |
20.4 |
30.0 |
46.6 |
|
|
|
|
|
|
|
EBITDA |
|
|
331.0 |
111.0 |
163.1 |
242.8 |
Adjusted NAV (p/share) |
|
|
323 |
337 |
359 |
395 |
Adjusted total DPS (p/share) |
|
|
9.5 |
9.5 |
10.5 |
13.1 |
|
|
|
|
|
|
|
Balance sheet |
|
|
|
|
|
|
Property, plant and equipment |
|
|
0 |
0 |
0 |
0 |
Goodwill |
|
|
0 |
0 |
0 |
0 |
Intangible assets |
|
|
0 |
0 |
0 |
0 |
Other non-current assets |
|
|
1,700 |
1,914 |
2,101 |
2,364 |
Total non-current assets |
|
|
1,700 |
1,914 |
2,101 |
2,364 |
Cash and equivalents |
|
|
6 |
2 |
2 |
2 |
Trade and other receivables |
|
|
8 |
6 |
6 |
6 |
Total current assets |
|
|
14 |
8 |
8 |
8 |
Non-current loans and borrowings |
|
|
0 |
4 |
4 |
4 |
Trade and other payables |
|
|
0 |
0 |
0 |
0 |
Other non-current liabilities |
|
|
42 |
9 |
10 |
10 |
Total non-current liabilities |
|
|
42 |
13 |
14 |
14 |
Trade and other payables |
|
|
20 |
15 |
15 |
15 |
Current loans and borrowings |
|
|
66 |
236 |
310 |
393 |
Other current liabilities |
|
|
0 |
0 |
0 |
0 |
Total current liabilities |
|
|
86 |
251 |
325 |
408 |
Equity attributable to company |
|
|
1,586 |
1,658 |
1,771 |
1,950 |
Non-controlling interest |
|
|
0 |
0 |
0 |
0 |
|
|
|
|
|
|
|
Cash flow statement |
|
|
|
|
|
|
Reported EBIT |
|
|
310 |
111 |
163 |
243 |
Share based payments |
|
|
3 |
4 |
0 |
0 |
Fair value and other adjustments |
|
|
(369) |
(174) |
(247) |
(331) |
Movements in working capital |
|
|
2 |
(2) |
0 |
(3) |
Cash from operations (CFO) |
|
|
(54) |
(61) |
(84) |
(91) |
Capex |
|
|
0 |
0 |
(0) |
(0) |
Cash transf. from inv. Held at FV |
|
|
12 |
(50) |
61 |
70 |
Portfolio Investments - Disposals |
|
|
0 |
0 |
0 |
0 |
Cash used in investing activities (CFIA) |
|
|
12 |
(50) |
61 |
70 |
Net proceeds from issue of shares |
|
|
210 |
(4) |
0 |
0 |
Movements in debt |
|
|
(106) |
169 |
74 |
84 |
Other financing activities |
|
|
(59) |
(58) |
(50) |
(63) |
Cash from financing activities (CFF) |
|
|
45 |
107 |
23 |
21 |
Currency translation differences and other |
|
|
0 |
0 |
0 |
0 |
Increase/(decrease) in cash and equivalents |
|
|
3 |
(4) |
0 |
(0) |
Currency translation differences and other |
|
|
0 |
0 |
0 |
0 |
Cash and equivalents at end of period |
|
|
6 |
2 |
2 |
2 |
Net (debt) cash |
|
|
(60) |
(238) |
(312) |
(395) |
Movement in net (debt) cash over period |
|
|
111 |
(178) |
(74) |
(84) |
Source: company accounts, Edison Investment Research (based on JLG’s statutory accounts). Note: Net debt shown for FY19 of £238m reflects cash of £2m less £4m of finance leases and borrowings of £236m. To calculate the net debt figure of £114m shown, JLG uses re-presented accounts with borrowing of £239m (subtract unamortised financing costs of £3m to equal the £236m shown on the statutory accounts) less cash and cash collateral of £125m. (£239m) plus £125m = (£114m).
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