Berenberg starts Morgan Sindall at ‘buy’

Berenberg started coverage of Morgan Sindall on Friday with a ‘buy’ rating and 4,500p price target.

It noted that the FTSE 250 contracting business is primarily exposed to the UK construction, infrastructure, fit-out and urban regeneration markets.

"The business operates a decentralised model and is conservatively run by a highly-regarded management team, with interests across a diverse range of contracting markets," it said.

It said that strong operational delivery in recent years has driven an "exceptionally" strong run in the shares, including a 15% increase following the recent trading update on 22 October.

Berenberg said: "As such, we think that the principal debates regarding the stock will shift to: 1) the extent to which the short-term acceleration in performance can be sustained into the medium term; 2) the moving parts within the Partnership Housing and Mixed Use Partnerships divisions, which could become the key growth drivers of the business in the next five years; and 3) the optimal allocation of capital for the group, considering its large - and growing - net-cash position."

The bank said it reckons Morgan Sindall is well positioned to meet these challenges, hence the initiation at ‘buy’.