Carillion builds on JPMorgan upgrade

Carillion got a boost on Friday after JPMorgan Cazenove upgraded its stance on the construction and support services company to ‘overweight’ from ‘neutral’ as it took a look at UK contractors.

JPM said the UK non-residential construction market is in recovery mode with meaningful opportunities in both the building and infrastructure markets.

The bank said it sees the greatest potential at Interserve, Carillion and Kier Group.

“UK construction and UK services markets represent around 50%-70% of each company’s revenue with the outlook for these markets solid, thus providing a strong base for growth across our forecast period.”

It said cash remains a key metric for the contractors with strong operating cash flow across the board (ex. Balfour Beatty) and Carillion exhibiting double digit free cash flow (FCF) from full-year 2016.

As far as Carillion is concerned, JPM noted that shares have declined by 16% since their last peak in August, which it sees as unjustified, particularly as they are supported by a 10% FCF yield in full-year 2016 and a 6% dividend yield.

JPM cut its price target for Carillion to 347p from 355p.

At 0915 BST, Carillion was up 4.9% at 314.90p.