Has Carillion’s collapse made John Laing Group a buy?


John Laing Group (JLG), an originator, investor and manager of infrastructure projects, finished 2017 in style, yet the share price has been pulled back in the last few days over links to collapsed construction firm Carillion. This is despite the same report that revealed the links also concluding there would be “no material impact”, so is this a good opportunity to pick up the share with a few percent discount?

After a strong update in December, John Laing Group ended 2017 on a high as the share price made gains of around 10% as the year closed out. Total investment commitments (projects that the group has invested in) of £340m were well ahead of the original estimate of £200m. Helped by the sale of Llynfi Wind Farm in Wales and the end of the year, realisations (cashing in on their investments) in 2017 amounted to £299 million. This too was well ahead of original guidance of £200m. Things were looking so peachy that John Laing Group announced a special dividend of 5-10%! Understandably the share price climbed as much as 10%.

However, in recent days it has retreated almost 5%. Included within the John Laing Group is an asset management division. This division generates income for the group by managing funds and portfolios, which invest in infrastructure projects, using other investors money and charging a fee for the service. One of these being the John Laing Infrastructure Fund Ltd (JLIF), which is available to the public to invest in. Now in this particular fund lies the reason behind the share price decay. John Laing Infrastructure Fund Ltd (JLIF) recently announced its link to the spectacularly collapsed Carilion. It revealed nine operational public-private partnership projects where Carillion is the facilities management provider, approximately 8.5 per cent of JLIF’s total portfolio. This saw the price of the fund crash 14%, which had a knock-on effect on the share price of the John Laing Group, since management fees from the fund form part of the group’s income.

However, the same announcement assured investors that it has had contingency plans for Carillion’s collapse in place for some time and that they are already beginning to appoint replacement contractors. What’s more the fund confirmed there are no project currently under construction where Carilion is a contractor. To summarise, the report found there to be “no significant areas of concern”.

So, we believe the damage to the fund, and therefore the group seems quite harsh. A 5% share price slide certainly is a material impact. We understand the basis of brokers Peel Hunt’s glowing recommendation, they said “a hybrid of growth appeal and strong yield” make it a great pick, and this was before the upbeat end to the year. Also consider that a P/E ratio of just 5.53 is also outrageous cheap. However, bear in mind that in times of political uncertainty and if the increasing murmurs of a long overdue recession come to fruition, infrastructure spending typically cools off. This would be bad news for the John Laing Group. However, in our opinion for a medium term buy, this seemingly unwarranted blip provides a good price for a stock which has room to grow and is offering attractive dividends.

Disclaimer: When investing in equity markets your capital is at risk. All content posted on stockpickers.co.uk is opinion and not intended to be instructional. The site cannot be held responsible for any losses upon the following of the opinions expressed. 


Add a Comment

Your email address will not be published. Required fields are marked *