13 October 2016 | Graeme Davies
The post-referendum wobble that saw equity markets gyrate dramatically appears to have been consigned to memory with share prices recovering strongly during July and August, with FM companies at the vanguard.
Bolstered by a decent results season in which a number of companies posted solid and, in some cases, surprisingly good financial performance figures, investor confidence in many FM companies has strengthened considerably.
Unsurprisingly, sector heavyweights such as Babcock, Interserve and Carillion have continued to make decent progress, with Interserve in particular seeing its shares surge by more than 50 per cent since the end of June, fortified by contract wins and solid full-year results and City analysts forecast further gains to come. Indeed, scribes at brokerage Jeffries have placed a 550p price target on its shares, against a 430p price at the start of September.
Such share price movements at large companies are unusual, but such has the rebound in investor confidence been since the initial shock of the Leave vote, the main UK indices have surged back strongly. Some confidence has come from better than expected economic data confounding fears of a sharp snap recession in the wake of the Brexit vote.
For individual sectors such as FM there may be some jostling for exposure among investors ahead of what may be an opening up of fiscal support for the economy in November’s Autumn Statement as the government looks to stave off the threat of recession – and also do its bit to strengthen the wider UK economy as the Bank of England begins to run out of monetary policy tools.
For two companies which have been through their fair share of woe in recent years, the latest results season brought hope for better times. Serco enjoyed a return to profitability in the first half and also pleased investors with news that it now expects full-year profits to be in the region of £80 million, up from the £65 million management forecast as recently as May. Serco’s shares reached their highest level in a year following its results, and have risen around 17 per cent since the end of June.
Meanwhile, G4S, which has suffered particularly poor press in recent years, finally enjoyed some better news. Its results suggested that chief executive Ashley Almanza’s restructuring is beginning to gain some traction. A raft of businesses have been sold off and in the first half of the year profits rose while cash generation also improved, lessening concerns over the company’s hefty debt pile.
Such gains can be quickly lost if progress is not maintained, but certainly the FM sector has enjoyed the summer months; what the winter will bring remains to be seen.
Graeme Davies writes for Investors Chronicle