The top 100: Plc or privately owned?

The recent financial travails of Carillion and Interserve have highlighted the dangers of buying shares in contractors. In November, Carillion issued its third profit warning of the year. One of the UK’s biggest and oldest contractors, Carillion cautioned it faced breaching lending agreements and investors have dumped the stock in swathes.

Shares in Interserve dropped 50% in the first hour of trading on the day of a profit warning in September as the stock dropped to its lowest ever price. In October, Interserve issued another profit warning and warned it too may breach banking covenants. Traditionally, contractors took on work on wafer thin margins and hoped to claw back a greater profit through claims and large revenue was used to impress investors.

Though the industry has changed, the majority of the leading contractors are publicly listed companies (Plcs), according to Glenigan’s research. Carillion has a long history in contracting and in the 12 months to November 2017 had a £1.4 billion order book, which excluded term maintenance and support services work and merits eighth place in Glenigan’s ranking of the top 100 contractors. Interserve, whose contracting history dates back to the nineteenth century, had £1.1 billion order book and is ranked 15th.

The UK’s most successful contractor in terms of work won over the last year is Sir Robert McAlpine, which is part of the privately owned Newarthill group, but 12 out of the top 20 contractors are Plcs. Kier, Balfour Beatty, and Morgan Sindall are ranked second, third and fourth and all listed on the London Stock Exchange, as is sixth-placed Galliford Try.

VINCI and Bouygues, ranked seventh, and tenth, are listed on the Euronext exchange. Multiplex Europe, ranked 12th, is owned by Brookfield Asset Management, which also has its shares listed on international markets.

Shares in Royal BAM from the Netherlands, Swedish group Skanska and Australian group Lendlease, which are placed in 13th, 14th and 18th position respectively in the latest leagues, are also listed on international stock markets.

Outside the top 20, there are significantly fewer quoted contractors. Costain, in 23rd spot, is listed but is an example of the problems facing investors. In the 1990s, the company’s shares were suspended for a significant period and no dividends were paid to investors for years. Watkin Jones got a float away in 2016 due mainly to the group’s expertise in building student accommodation, but the likelihood of other contractors following suit seems low.

Tolent, in 58th place, was listed on the Alternative Investment Market until being bought off AIM in 2010 due to the costs of being listed on this junior exchange.

Spanish giant Ferrovial, the owner of Amey and ranked in 75th spot, is listed in Europe and North Midland in 78th is one of the few remaining regional contractors still listed on the stock market.

Overall, just 16 of the top 100 contractors are Plcs.

Smaller Plcs such as Mears and Lakehouse are not in the top 100 as they focus on smaller projects and term maintenance, and the chances of the Plc contingent being swelled seems unlikely given the cautionary tales of Carillion and Interserve.