New Shore Capital research note - and upgrades18 May 2021 23:38
Here's their summary after today's excellent results and outlook - they see at least a 100p fair value here:
"Sweeping upgrades after strong first half
We have upgraded our FY2021 F PBT, EPS and dividend estimates by 8%, 7% and 20% respectively following this morning’s interims and have made significant upgrades to profit, net cash and dividend forecasts for the following two years. The Compliance division had a strong first half whilst Energy Services delivered a resilient result despite Covid-related disruptions and, in our view, showed promising evidence of the sustainability drivers that we believe will make it the Group’s main growth driver over the long term. The valuation now looks very compelling at a FY2022F P/E of 10.5x. House stock.....
.....Decent upgrades for FY2021F; bigger for next two years.
Our extensive upgrades are detailed on Figure 1, page 2. They involve mainly ‘high-teen’ percentage increases for profit measures in FY2022F and FY2023F, while the cashflow benefits feed through cumulatively through to net cash over the three-year forecast horizon. Importantly, we have made a step-change in our dividend assumptions, progressively leading to a 43% increase in our FY2023F estimate to 2.5p.
Still conservative?
Our estimates do not, for instance, assume any acquisitions. In December 2020, the Group made the small but, in our view, symbolic step of acquiring Vinshire Gas Services, the first after a long period of retrenchment for Sureserve. Today’s statement referred more explicitly to “acquisitive growth opportunities” as well as further organic potential in a fragmented market. Our estimates, likewise, do not assume major public sector contract wins.
Compelling mix of growth, sustainability and cash.
Both divisions offer, in our view, high revenue visibility from typically three-to five-year contracts: Compliance underpinned by the regulatory necessity to monitor safety of gas and other utilities in social housing; and ES by national and local government commitments to insulation, plus innovative heat pumps and vehicle charging points.
Valuation.
The shares are trading at a P/E of 10.5x 2022F, falling to 9.8x for FY2023F, and for FY2022, EV/EBITDA and FCF yield of 7.2x and 7.0%. Previously, dividend yield had not been compelling, but at the end of the forecast period, our FY2023F equates to 3.0%. In our 9 March report, we suggested a fair value of 100p represented a FY2022F P/E of 15x. On our new numbers this is now only 12.8x."
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