Last Update03 Oct 25Fair value Increased 8.57%
Galliford Try Holdings' analyst price target has increased from £5.51 to £5.98, as analysts point to a slightly higher fair value and improved profit margin expectations that support the revised outlook.
Analyst Commentary
Bullish Takeaways- Bullish analysts highlight improved profit margins as a key driver supporting the upgraded price target. This suggests operational efficiencies are being realized.
- There is confidence in Galliford Try Holdings’ ability to achieve a higher fair value, which indicates potential for sustained growth relative to current market access.
- Analysts point to the company's capacity to manage costs effectively. This is expected to further strengthen earnings and bolster shareholder value.
- Expectations of robust execution on projects have reinforced the positive outlook, since well-managed delivery remains crucial for continued momentum.
- Bearish analysts caution that if profit margins fall short of projections, the current valuation could come under pressure.
- Some remain watchful regarding the company’s exposure to cyclical market fluctuations, which may introduce volatility in future earnings.
- Concerns linger around execution risks, particularly as the company scales operations. This could impact the consistency of financial performance.
- There is also vigilance about the company’s cost management, noting that unexpected increases could challenge near-term profitability targets.
What's in the News
- Galliford Try Holdings plc has announced a share repurchase program of up to £10 million. The intention is to reduce share capital and enhance earnings per share. Ordinary shares purchased will be cancelled. (Share buyback announcement)
- The company is proposing a final dividend of 13.5 pence per share for the financial year ending 30 June 2025. This brings the total 2025 dividend to 19.0 pence per share, subject to shareholder approval. (Dividend proposal)
- Galliford Try Holdings plc expects full year revenue for 2025 to exceed the upper end of current analyst forecasts, projecting between £1,864.7 million and £1,885.6 million. (Earnings guidance)
- The company has been added to several FTSE indices, including the FTSE 250, FTSE 350, and related ex-investment company indices. (Index additions)
Valuation Changes
- Fair Value has risen from £5.51 to £5.98, reflecting a modest increase in the estimated intrinsic value of the company.
- Discount Rate increased marginally from 8.61% to 8.63%, suggesting a slightly higher required rate of return applied in the valuation model.
- Revenue Growth forecasts declined slightly, moving from 2.79% to 2.76%.
- Net Profit Margin is projected to improve, rising from 2.01% to 2.06%.
- Future P/E ratio has increased from 16.4x to 17.2x, indicating a higher expected valuation relative to future 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.
How well do narratives help inform your perspective?
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.
Read more narratives
There are no other narratives for this company.
View all narratives