Last Update 15 Dec 25

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.

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.What are the underlying business or industry changes driving this perspective?

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 Earnings and Revenue Growth

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.

GFRD: Share Buybacks And Dividend Boost Are Expected To Drive Shareholder Value