Hobson: Some Good Investing News for Once

THE WEEK: Morningstar columnist Rodney Hobson hails some upbeat developments from construction consultancy Driver and infrastructure group Balfour Beatty

Rodney Hobson 14 December, 2018 | 2:32PM

Stocks and Bond Charts

In these troubled times it’s good to see a happy turn of events, so well done construction and engineering consultancy Driver (DRV) rolling up just in time for Christmas. Driver reported underlying pre-tax profit up 54% from £2.5 million to £3.8 million in the year to 30 September on revenue up just 4%.

Not having to stand a £1.1 million cost of restructuring, as happened last year, helped further. That restructuring certainly seems to be working well, allowing chief executive Gordon Wilkinson to chirrup: “The transformative turnaround in Driver Group's fortunes reflects a job carefully judged and executed.”

He claims that Driver is delivering an “expert, sustainable and truly world-class professional service” to clients, a claim that may be justified as the group has performed well in all regions. Revenue from Europe and the Americas increased 10% with profit up 30%; Asia Pacific produced 32% growth in revenue with doubled profits; and although revenue slipped in the Middle East, a particular strong performance in Kuwait and Qatar and careful management of costs helped to raise profits in the region by 11%.

All this brought a swing from £200,000 net debt to £6.9 million net cash and a return of the dividend that has been suspended for two years. It’s only 0.5p but Driver should be able to increase the payout year by year, especially as the current financial year has shown a continuation of positive trading despite global economic uncertainties.

The better performance had already been reflected in the share price, which rose from 60p in February to the top side of 80p from June onwards, although there has been some slippage to around 76p. The yield is only about 0.6% but if Driver can continue to improve then so will the yield. I don’t go for small recovery stocks but anyone who does should take a look while the shares remain below 80p.

Dixon Carphone Investors Still on Hold

Pssst! Want a mobile phone for a fiver? Sounds like a dodgy deal from Del Boy on Peckham market – and so it has turned out.

Dixons Carphone (DC.) shares peaked at 500p at the start of 2016. This week they slipped below 150p after yet another badly received update. I paid 307p so I suppose I’ve got off lightly.

For the 26 weeks to 27 October, Dixons raised like-for-like sales by 2%, with all the gain coming in the second quarter so at least things are getting a bit better. Dixons claims it actually gained market share.

Unfortunately underlying pre-tax profits slumped from £73 million to £50 million. Throw in exceptionals of £490 million and you get a nasty loss. The fact that these are mainly goodwill writedowns that don’t actually cost anything and constitute a bit of kitchen sink acconting is little consolation to shareholders who see the interim dividend reduced from 3.5p to 2.25p.

I keep hoping that this really is the bottom and when G5 rolls in perhaps fortunes will change. I really cannot in all conscience encourage any investors to buy shares, even at less than half the price that I paid.

Balfour Beatty on The Right Road

On a more cheery note, infrastructure group Balfour Beatty (BBY) is set to beat expectations for the full year, though only because of extra cash from disposals. However, the second half performance has matched up to the first, the disastrous Aberdeen bypass should be completed by year end, contracts are being won with decent margins and debt has been reduced.

In a sector where rivals have struggled or gone bust, Balfour is doing well. The fall in the share price has been overdone and a tick-up after the latest update has not gone far enough. I write as a shareholder, but I think this is still a buy.

 

 

Rodney Hobson is a long-term investor commenting on his own portfolio; his comments are for informational purposes only and should not be construed as investment advice, nor are they the opinions of Morningstar.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Balfour Beatty PLC231.60 GBP0.00
Dixons Carphone PLC124.60 GBP0.00
Driver Group PLC60.50 GBP0.00

About Author

Rodney Hobson

Rodney Hobson  is a columnist for Morningstar.co.uk and author of several investing books, including The Dividend Investor and How to Build a Share Portfolio.

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