HSBC hikes target price on Morgan Sindall

HSBC said Morgan Sindall has long prided itself on balance sheet discipline and finds itself the net beneficiary of a competitive landscape where ISG has gone into administration, noting its strong balance sheet has become more of a competitive advantage.

The UK bank, which stood by its 'buy' rating on the stock, stated new competition will enter the market, attracted by the structural growth of fit-out, but said Morgan Sindall appears to be winning business at "a very healthy rate".

"We lift our 2024e adj. PBT forecast by c12% to reflect the current ability to win contracts. We expect this to last into 2025e and lift our 2025e adj. PBT by c8%. The 10-year +/-1sd historical 12-month forward PE range got MGNS is 8.2-11.3x. We set our target price based on a target PE multiple of 13.5x (from 12.0x), now at a premium to the historical range due the supportive plans of the UK's new government, a return to profitability nearing for Property Services, and the competitive strength in Fit Out, itself a growing market," said HSBC.

"For us, that builds further on the group’s order book visibility, record of execution, and benefits demonstrated from its diversified exposures. We apply our target multiple to our revised 2025e EPS estimate of £2.72 (from £2.52), which results in a year-end fair value of 3,674.0p that we discount back at a 10% annualised required rate of return to set our TP at 3,615.0p (rounded). Our TP implies circa 11% upside."

Reporting by Iain Gilbert at Sharecast.com