Shares in Carillion plc (LON: CLLN) (LSE: CLLN.L) have edged higher today after it released a trading update ahead of its first-half results on 24 August. Carillion’s overall performance has been driven by sales and margin growth from its support services segment, which is now expected to make-up around two thirds of overall underlying operating profit.
Average net borrowing is expected to be in-line with the full year average for 2015 of £539m. Net borrowing as at 30 June will increase due to previously announced temporary factors, but Carillion anticipates net borrowing to reduce by the year end and its expectations for full-year cash flow and net borrowing remain unchanged.
In terms of winning work, Carillion continues to make solid progress. New first-half orders and probable orders worth £2.5bn have been recorded. At the half-year end, Carillion has a 97% revenue visibility for 2016 and an order book plus probable orders worth £17.4bn, which is the same figure as at December 2015. Additionally, Carillion has a significant pipeline of specific contract opportunities worth around £41.5bn.
Due to Carillion’s large exposure to the UK economy, it faces substantial risks from the UK’s decision to leave the EU. While Carillion cannot say at the moment exactly how great the effects will be, it states that it has conducted extensive work prior to the referendum to assess the potential impact of a ‘leave’ vote on its financial performance. Its international operations could also help it to perform well even if the UK economy experiences a downturn.
Carillion currently trades on a P/E of 6.4. This indicates good value for money even when the risks to its business are taken into account. Further, Carillion is expected to return to positive EPS growth next year and trading on a yield of 8.4%, appears to be a sound buy for the long term in my opinion.
The author does not own shares in Carillion at the time of writing.