GFRD: Index Additions And Buyback Will Support Future Share Rerating

Analysts have nudged their price target on Galliford Try Holdings modestly higher to approximately £6.00 per share, citing a slightly lower discount rate and stable long term growth and margin assumptions that support a broadly unchanged fair value outlook.

Analyst Commentary

Bullish analysts point to Galliford Try Holdings' consistent execution on its order book and disciplined bidding as supporting a valuation near the updated price target, with lower perceived risk around margin delivery than in prior cycles.

Bullish Takeaways

• Bullish analysts view the modestly lower discount rate as reflective of improved balance sheet resilience and lower perceived earnings volatility, which they believe justifies a valuation closer to sector averages.
• Stable long term margin assumptions are seen as credible given recent contract performance and tighter risk controls, supporting confidence in medium term earnings growth.
• The current share price is seen as not fully capturing the visibility of revenues from public sector and infrastructure frameworks, which underpins forecasts for steady top line expansion.
• Management's focus on capital discipline and cash generation is highlighted as a key support for potential capital returns, bolstering the total shareholder return profile.

Bearish Takeaways

• Bearish analysts caution that, while the discount rate has edged lower, it still embeds macro and sector risk that could weigh on valuation multiples if construction activity softens.
• There is concern that any cost inflation or project delays could pressure margins, given that long term margin assumptions are already near the upper end of the company's recent track record.
• Some see limited near term upside to estimates, arguing that much of the operational improvement is already reflected in current forecasts, constraining re rating potential.
• Execution risk on larger, more complex infrastructure projects is flagged as a potential source of earnings volatility, which could challenge the sustainability of the current fair value range.

What's in the News

• Appointed to a EUR 3 billion affordable homes framework by The Hyde Group, securing a place on all seven main contractor lots across the East, South and London regions for five years, targeting 1,500 homes per year (client announcement).
• Added to the FTSE 250 Index, increasing visibility among institutional investors and index trackers (index constituent add).
• Added to the FTSE 250 (Ex Investment Companies) Index, broadening index inclusion within the UK mid cap universe (index constituent add).
• Added to both the FTSE 350 and FTSE 350 (Ex Investment Companies) indices, further expanding passive and benchmark driven ownership potential (index constituent adds).
• The board has authorized a share buyback plan and launched a share repurchase program of up to £10 million. Repurchased shares will be cancelled, with the stated aim of enhancing earnings per share and returning capital to shareholders (buyback transaction announcements).
• A final dividend of 13.5 pence per share has been proposed for FY 2025, bringing the total dividend to 19.0 pence per share, compared with 15.5 pence in 2024 excluding the special dividend, subject to shareholder approval (dividend increase announcement).

Valuation Changes

• Fair Value: Unchanged at approximately £5.98 per share, indicating a stable central valuation view.
• Discount Rate: Fallen slightly from about 9.03 percent to roughly 9.01 percent, reflecting a marginal reduction in perceived risk.
• Revenue Growth: Effectively unchanged at around 2.76 percent per year, indicating a steady medium term growth outlook.
• Net Profit Margin: Stable at close to 2.01 percent, with only immaterial model rounding changes.
• Future P/E: Edged down marginally from about 18.0x to 18.0x (rounded), implying a nearly identical multiple underpinning the valuation.