SIF Folio: It's time to make a proper decision about T Clarke

Tuesday, Jun 04 2019 by
21
SIF Folio Its time to make a proper decision about T Clarke

The inglorious departures from the SIF folio of Bilby and Staffline over the last two weeks have drastically reduced the fund’s exposure to UK-focused cyclical businesses.

Still left in the fund are car dealership group Lookers and brick maker Michelmersh Brick Holdings. Arguably, packaging group Macfarlane shares some exposure to the UK cycle as well.

Against this backdrop, I’m forced to again consider whether to add building services contractor T Clarke (LON:CTO) to the folio. This highly-regarded small cap is still the top-ranked eligible stock in my Stock in Focus screen results. It’s also highly-rated by Stockopedia’s algorithms:

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I first considered T Clarke a few weeks ago but opted to add emerging market asset manager Ashmore instead to improve my diversification. My exposure to UK cyclical stocks is now much lower, so I feel that I should now make a more committed decision about T Clarke.

Sector backdrop is mixed

Let’s start with a look at the wider Construction & Engineering sector to which T Clarke belongs.

According to the Stockopedia stats, companies in this sector trade on a median price/earnings ratio of 9.1 with a median dividend yield of 3.8%. Earnings per share are forecast to rise by an average of 6.9% this year.

5cf647f7a595bS2.png

These numbers seem to paint a fairly neutral picture to me. You’d expect low valuations for companies of this kind, but it’s encouraging to see that sector earnings are still expected to rise this year.

At a company level it’s probably fair to say the outlook is more mixed. Notable losers over the last six months include Bilby and Kier Group, which fell 40% on Monday after a big profit warning.

However, even Kier singled out its ‘Buildings’ division as being the only area where it was still seeing revenue growth, albeit at a slower rate. I’d imagine this is where the firm’s activities coincide with those of T Clarke, so that seems cautiously optimistic.

Deloitte’s latest London Crane Survey suggests a similar picture. Activity in the London office market is said to be robust, but with a shrinking long-term pipeline. This is important as the City is a key market for T Clarke, which has…

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As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested. ?>


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TClarke plc is a United Kingdom-based building services company, which delivers electrical, mechanical, and information and communications technology (ICT) services. The Company provides electrical and mechanical contracting and related services to the construction industry and end users. Its geographical segments include London and South East, Central and South West, the North and Scotland. The Company's businesses include Intelligent Buildings Green Technologies, Facilities Management, Transport, Mission Critical, Manufacturing Services, Residential & Hotels, M&E Contracting and Design & Build. The Company within its M&E contracting business has capabilities in sectors, including commercial offices, retail, education, healthcare, financial services and media. Its Manufacturing Services business includes in-house precision prefabrication and engineering services. Its projects include Beckley Court, Chiswick Park, Kettering Hospital, Project Nova, Mitie Care Home and Rathbone Square. more »

LSE Price
120.5p
Change
2.1%
Mkt Cap (£m)
50.8
P/E (fwd)
6.5
Yield (fwd)
3.9



  Is LON:CTO fundamentally strong or weak? Find out More »


8 Comments on this Article show/hide all

InvestorJohn 4th Jun 1 of 8
1

I agree with you Roland and think there is better buys available and would therefore remain neutral on this one.

On one hand the momentum in the share price looks great and could continue for another while who knows and I like to buy into companies with a positive trend... On the other hand the margins are small so do they really have any sustainable competitive advantage?

As you say it is always hard to determine where in the cycle we currently are and as a holder of Redrow (LON:RDW) I have to ask some of the same questions

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Howard Adams 4th Jun 2 of 8
3

Hi Roland

As I read this (12:59). T Clarke (LON:CTO) fallen -10.59%.

Not sure if its trades between institutions or start of down turn. I'll watch carefully.

Sadly I hold.

EDIT(13:03): Oh two big sells amounting to 180 thousand units.

Regards
Howard

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prem14 4th Jun 3 of 8

In reply to post #480556

Hi
"EDIT(13:03): Oh two big sells amounting to 180 thousand units."
Am I right in assuming this info is not available in Stocko?
Thanks

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Howard Adams 4th Jun 4 of 8

In reply to post #480606

Hi prem14

I got it from the LSE Interactive Chart/Today view ---- make sure to tick the show volume box and I usually select the candlestick view.

https://www.londonstockexchange.com/exchange/prices-and-markets/stocks/summary/company-summary-chart.html?fourWayKey=GB0002015021GBGBXSET3

Regards
Howard

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Roland Head 4th Jun 5 of 8

In reply to post #480676

Hi Howard/prem14,

One comment I would make - I'm not sure that the T Clarke (LON:CTO) sells Howard mentions were two large single trades. The list of trades which went through today on the LSE doesn't seem to include any that large:

https://www.londonstockexchange.com/exchange/prices-and-markets/stocks/exchange-insight/trade-data.html?fourWayKey=GB0002015021GBGBXSET3

I'm no expert on this and may have missed something, but it looks more like a group of smaller trades to me.

Regards,
Roland

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Roland Head 4th Jun 6 of 8

In reply to post #480531

Hi InvestorJohn,

I agree that the same questions apply to Redrow (LON:RDW) -- but with an added political dimension due to the effect of Help to Buy and the tendency of UK governments to interfere with the housing market.

Regards,
Roland

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Funderstruck 5th Jun 7 of 8

I agree with you Roland on both the fundamentals and tech analysis; i did consider it last year after Mello but decided against it, although there was quite a lot of excitement about it among the investors. From the TA point of view since the recovery from 2007 the price either falls well back or consolidates after a big steady rise, also the price did not exceed 90 from 2014 for 5 yrs then broke out & gained 55% to the recent high. On past performance & because of the Market and the business CTO are in I would steer clear.Also it has just had some very big lows which nearly breached the 200Ma, if it did that Momentum would drive it down more.. I would buy , if the business stays the same , when the price gets near to 85.

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wilkonz 6th Jun 8 of 8

In reply to post #481201

On May 16th Simon Thompson, in IC, rated T Clarke (LON:CTO) a strong buy at 128 with a target price of 150. I hold. Hopefully the recent dip in price to 123 is just a reflection of the macroeconomic situation and the cyclical nature of the business. Despite the somewhat narrow profit margin this is probably a reasonably priced share and I have no immediate plans to sell. A fall to 85 looks unlikely - but one never knows in this business (predictions are at best uncertain, as I'm sure Neil Woodford would agree).

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 Are LON:CTO's fundamentals sound as an investment? Find out More »



About Roland Head

Roland Head

I'm a private investor, analyst and writer on stock markets, with a particular fondness for free cash flow, dividends and value. My main interests are UK and US stocks. I also have an interest in (profitable) commodity stocks.  I hold the CFA UK Investment Management Certificate (IMC). One of my investment interests is developing rules-based strategies such as my Stock in Focus portfolio. This reflects a significant part of my personal portfolio and is the subject of my weekly column here at Stockopedia. In earlier life, I worked as an engineer in telecoms and IT. The rules-based and quantitative approach required for this kind of work undoubtedly influenced my investing style. I also learned a lot from seeing the tech bubble deflate in 2000-1, when I was working for a very large and now defunct Canadian telecoms firm.  more »

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