Shares in construction and housebuilding group Galliford Try climbed sharply following its announcement of substantially better-than-forecast debt levels.
The firm, which is carrying out the £20 million refurbishment of Muirhead Tower at Birmingham University, also reported “excellent” performances from its building, infrastructure and affordable housing division.
Shares in Galliford closed up 4.75p at 37.25p, having underperformed the FTSE All Share Construction and Materials index by 53 per cent since the start of the year and the FTSE All Share Household Goods index by 46 per cent.
Galliford, which builds public sector facilities and private homes, said it had been able to cut its net debt to less than £5 million pounds by June 30 2008, representing gearing of under two per cent. The group said this was down to its aggressive policy on selling, together with action taken to reduce housebuilding work in progress, overheads and spending on land.
It also cited deferred payments and land creditors below previous forecasts as well as excellent cash generation from its construction divisions. Analysts said the debt figures were well below market expectations of up to £100 million and that the group now has the ability to buy land cheaply from more highly geared rivals next year.
Dresdner Kleinwort analyst Alastair Stewart said in a note: “Next year, we expect significant net cash, allowing (Galliford) to buy land at swingeing discounts from distressed sellers.”
Galliford’s larger rivals Taylor Wimpey and Barratt Developments are weighed down by debt of £1.7 billion pounds, far exceeding their market capitalisation.
The public and regulated sectors account for 87 per cent of Galliford’s £1.9 billion contracting order book. It said its building division’s £0.8 billion order book was well-balanced across market sectors, with 75 per cent for public and regulated clients.
Eighty per cent of its infrastructure division’s £0.9 million order book is in long-term frameworks, and over 95 per cent is for the public and regulated sector. The group said the housebuilding market had shown no sign of improvement since its interim management in May as restricted mortgage availability and low consumer confidence take their toll on the market.
It said it had benefited from strong sales in its housebuiding arm in the early part of the financial year, but the average sale price was £193,000, down 12 per cent on a year ago.
Galliford Chief Executive Greg Fitzpatrick said the company expects a further house price fall of up to 15 per cent over the next year.
“You could say our forecasts assume prices will reduce by somewhere between seven and 15 percent from where they are now,’’ he said. “We are obviously going to have a very difficult housing market for the next 12 to 18 months.’’
Galliford’s share price increase came despite the firm’s announcement that in the light of the current economic environment it expects to keep its shareholder payout for the year to June 30 unchanged.
“Based on the current outlook, the board are unlikely to recommend an increase in the level of total dividend over the prior year,” the company said.