Last Update 15 Nov 25
GFRD: Five-Year Housing Framework Appointment Will Drive Share Momentum
Analysts have maintained their price target for Galliford Try Holdings at £5.98, reflecting only minimal adjustments to growth and profitability assumptions. Ongoing projections indicate stable fundamentals despite a slightly higher discount rate and modest shifts in forecast margins.
Analyst Commentary
Recent commentary highlights differing perspectives on Galliford Try Holdings, with ongoing debate around the company's financial resilience and growth prospects.
Bullish Takeaways- Bullish analysts see robust fundamentals supporting the current valuation, with strong project execution and consistent order book replenishment cited as key factors.
- Continued adherence to balanced capital allocation and cost discipline is expected to support earnings stability, even in the face of industry headwinds.
- The company’s track record of successful contract delivery and risk management is viewed as a cornerstone for dependable, long-term growth.
- Bearish analysts highlight that margin expansion remains constrained, with only incremental improvements expected in the near term.
- There are concerns that external pressures such as rising costs and competitive dynamics could limit the potential for higher profitability.
- A marginal increase in the discount rate and cautious adjustments to growth assumptions indicate the possibility of slower value creation ahead.
What's in the News
- Appointed to a EUR 3 billion affordable homes framework by The Hyde Group, confirmed on all seven lots across East, South and London regions for a five-year period. The project aims to build 1,500 homes annually (Client Announcements)
- Added to the FTSE 250, FTSE 350 (Ex Investment Companies), and FTSE 350 Indexes, which strengthens its presence among leading UK-listed companies (Index Constituent Adds)
- The Board has authorized a buyback plan and announced a share repurchase program of up to £10 million. Shares purchased will be cancelled to enhance earnings per share and return capital to shareholders (Buyback Transaction Announcements)
- Proposing a final dividend of 13.5 pence per share for the year ended 30 June 2025, bringing the total to 19.0 pence per share subject to shareholder approval. This is up from the previous year (Dividend Increases)
Valuation Changes
- Consensus Analyst Price Target remains unchanged at £5.98, indicating no overall adjustment to fair value estimates.
- The discount rate has risen slightly from 8.65% to 8.98%, reflecting a modest increase in perceived risk or market conditions.
- Revenue growth expectations have decreased marginally from 2.76% to 2.74%, signaling a very minor downward revision in growth outlook.
- Net profit margin has fallen slightly, moving from 2.06% to 2.01%.
- Future P/E has increased from 17.35x to 17.96x, suggesting that shares are now valued at a higher multiple of expected earnings.
Key Takeaways
- Expansion into energy and capital maintenance markets is set to enhance revenue growth by leveraging expertise in higher-margin areas.
- Reentering the affordable homes market presents significant opportunities, utilizing the company's construction skills for future revenue growth.
- Execution risks in reentering the affordable homes market, combined with economic and sector-specific challenges, threaten Galliford Try's revenue projections and cash flow stability.
Catalysts
About Galliford Try Holdings- Operates in the construction business in the United Kingdom.
- Galliford Try's expansion into energy and capital maintenance markets, particularly in water and wastewater treatment, is expected to enhance revenue and margin growth by leveraging existing expertise in adjacent, higher-margin markets.
- Reentering the affordable homes market, now unrestricted after selling previous housing businesses, offers significant revenue opportunities given the company's skills in building mid-rise blocks of flats, expected to drive future revenue growth.
- Modern methods of construction, such as off-site manufacturing and using digital tools, are anticipated to enhance efficiency and reduce costs, thereby potentially increasing net margins by reducing rework and improving project delivery times.
- The company's strategy of securing long-term frameworks and negotiated contracts in infrastructure sectors like AMP8 ensures a stable and predictable revenue stream, safeguarding against market volatility and promising sustained revenue and margin growth.
- A strong balance sheet, with no debt or pension liabilities, coupled with strategic M&A focused on margin-accretive businesses, positions Galliford Try to increase earnings through reinvestment and selective acquisitions while maintaining robust shareholder returns.
Galliford Try Holdings Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming Galliford Try Holdings's revenue will grow by 1.9% annually over the next 3 years.
- Analysts assume that profit margins will shrink from 2.1% today to 1.5% in 3 years time.
- Analysts expect earnings to reach £30.2 million (and earnings per share of £0.32) by about September 2028, down from £40.3 million today.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.1x on those 2028 earnings, up from 10.3x today. This future PE is greater than the current PE for the GB Construction industry at 13.6x.
- Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 8.72%, as per the Simply Wall St company report.
Galliford Try Holdings Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- The company faces a challenge in execution risk related to reentering the affordable homes market, which could impact its revenue growth projections.
- An economic downturn or public spending cuts could affect their long-term government framework contracts, thus impacting predictable revenue streams.
- The company’s strong cash position may be affected if it does not effectively manage operational risks, given that they often work on long-term and complex construction projects.
- The high dependency on framework agreements puts pressure on maintaining competitive operational efficiency and cost management to achieve projected margins.
- Any disruption or failure in key sectors such as water (e.g., Thames Water issues) could affect their order fulfillment and cash flow stability.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of £5.052 for Galliford Try Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £5.4, and the most bearish reporting a price target of just £4.24.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £2.0 billion, earnings will come to £30.2 million, and it would be trading on a PE ratio of 21.1x, assuming you use a discount rate of 8.7%.
- Given the current share price of £4.24, the analyst price target of £5.05 is 16.1% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
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Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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