Galliford Try Share Discussion Threads

[careful] 23/9/2019 13:51

Trying to understand what my holding is worth after this deal goes through.

Bovis claims the deal values the housing business at £1.075bn.

After I receive my Bovis shares after these companies combine, will I still be left with some GFRD shares?
Struggling to understand the £300m payment and the status of the construction arm.

[dr_smith] 23/9/2019 12:17

Yes.
PSMN have bought their own brick factory.
I confess I've never understood why it is called "cyclical" as both gov parties, BOE and private sector seek to avoid boom and bust, indeed it is a sign of failure if it happens.
On modular capacity, I've been surprised fo many years we haven't seen more automated and off-site builds, premium prefabs. Not for trendy Swedes and Germans, but for mass market.
I assume that's down to the high set up cost, now happeneing in isolation, but that shift is still to come IMO.

[marksp2011] 23/9/2019 11:57

I think the main reason is that they are at a productive limit. If they want to do more they will need more brick making capacity, more modular capacity etc. That means new facilities and investment in output that they may not be able to sell ............ adds to fixed costs and it looks like they might have learned their lesson.

I guess the sector will be less "cyclical" than it has been before

[dr_smith] 23/9/2019 11:41

Cheers Mark.
Another reason why builders (in profitable homes contaxt) are happy to maintain current build rates, rather than take on employees to exploit current house shortage, that can't easily slim employees down, so in place of expanding t/o and profits, buildera pay special divs, to maintain investor return growth without growing potential liabilities.

[marksp2011] 23/9/2019 11:19

All the energy companies that were nationalised have staff on Civil Service packages. the oilers have people on terms you wouldn't believe. When they try to offload their infra and support, property management etc..........they are toxic

Thinking about it...........many of the "good" empoyers of the past are saddled with the same issue. They can't really slim down as they can't handle the pension liabs

If you trf out a good pension at the moment it costs a fortune for the existing pension fund and you are one less person to die and leave your contribs in the fund - trf out also requires the pension fund to be funded which creates another issue.

Transferring out pension funds increases the size of the pension deficits. Very very painful

[dr_smith] 23/9/2019 10:15

Mark. Thank-you for expanding on TUPE, rings a bell with recent train franchise deals, but when you say "government has been trying to TUPE out staff " what staff are they?
Sporadic aged, left over from specific large projects, department closure etc.

"So if you are Galliford....stick as many punters into Linden as you can especially HO and admin staff. They will all trf to BVS and BVS can make them redundant."
I take you point on tring to pass the baton here in GFRD's case.

My brain is going rusty, but in a couple of recent negotiated takeovers, can't recall which, but there were later rns's with bidder agreeing to take on pension liabilities, evidencing your point.

Dave

[marksp2011] 23/9/2019 09:16

dave

So if you are Galliford....stick as many punters into Linden as you can especially HO and admin staff. They will all trf to BVS and BVS can make them redundant.

[marksp2011] 23/9/2019 09:12

TUPE - Transfer of undertakings

When a company sells part of the business or HMG outsources, the staff are transferred on their existing Ts&Cs to whoever takes over. The buyer can give cash to buy out benefits if they can.

So, a private sector company gets 300 UK Civil servants. They come on Civil Service packages. The private company gets to pay the civil service pensions. This is why trad outsources have horrible pension deficits. You can try and negotiate a funding deal with the government

These are the issues that are causing the rail franchise bidding to collapse. private sector cannot take on civil servant employment liabilities. HMG hasn't funded the pension schemes but now they expect private sector to take them on.

All gov contracts have the same drive behind them.

I saw some deals with a large corporate that was trying to outsource. If you made anyone redundant they transferred over they got 1.5 months salary for every year worked and, 12 months notice. Work there 15 years and get 3 years salary if you are made redundant !!
The outsourcing contract was....... you guessed it.......3 years.

In the outsourcing world, there are whole lumps of staff moving from outsourcer to outsourcer as poison pills. No-one wants them but no-one can afford to get rid or......pay the pension if they retire.

[dr_smith] 22/9/2019 11:52

Mark: It's fantastic having first hand feedback - thank-you.

On 2nd para, I had to google TUPE, but unclear as to who/what staff you are referring to being tuped out. An unwanted gov planning office, a 3rd party company??

When you say "recommend we abandon the sector ", do you mean construction/infrastructure in its entirety, or just gov?

It's both a simple and tough question, but why aren't the rules of economics working here, so that reasonable margin can be had?

With Carillion gone is there still too many companies fighting for too little work?

To give myself some contaxt on sector, googling I find:
--------------------------
Construction output in the UK is more than £110 billion per annum and contributes 7% of GDP (ref. Government Construction Strategy). Approximately a quarter of construction output is public sector and three-quarters is private sector.

-----------------
and from final results:

>Pre-exceptional revenue of £1,387m as the business focuses on core sectors (2018: £1,687m)

So, if I have sums right, GFRD construction side is around 1% of UK t/o and GFRD as a whole is 2.6%.

Dave

[marksp2011] 22/9/2019 10:08

dave

I am bidding about 20 government deals at the moment. There is a lot of noise about quality of delivery but, in the end they just push for risk transfer and the lowest price. The number of deals we see that are going to BAFO at which point we decide not to play is making me recommend we abandon the sector altogether

It is a completely different sector but, government has been trying to TUPE out staff with crippling pension liabilities offering short term contracts to whoever takes them. The most bizarre deal I have seen lately offered

take all the staff
take all the facilities
keep all the staff - no redundancies
Give us a 30% price reduction
Improve our Services - (Meet SLAs using the same people and facilities they hadn't got anywhere near in the previous 5 years)

Apparently we were also supposed to make a profit out of this deal.

Someone "won" this. I had never heard of them. The pension liabilities were at least 2 x total contract value. If you can transfer them on, (without too many retiring on your dollar), you might get away with it but....





Three year deal.

[dr_smith] 21/9/2019 14:20

Mark.
Short answer FK ;-)
That question needs to be put to the BOD, not so much a pound note figure but business plans upon which we can assess value. As I said, it is conspicuous by its absence and merits of BVS proposal can't be assessed without such comment on what they plan to do with construction now (no BVS offer) and what they would do with the offer and extra cash.

I tried to include the ingredients I could think of for "construction" value/sp in my post 5411.
As you say 2% ain't much.
I don't really understand it, all construction co's seem to be cutting their throats, seemingly paniced into getting order just to cover overheads, I don't know why they don't bid with sensivble margins, with gov seeing quality of delivery under that higher margin, so cost-effective in medium term.
With Carillion out of the picture, more work to spread out, so chance of sensible margin.
Is construction business in over-supply?
IIRC their was comment by gov that in future they would not be so aggressive with bully boy tactics after Carillion, but don't know if that relates only to not having contractors act as co-guarantor for each other, or for also respecting sensible margin.

It crossed my mind BVS (and GFRD as a bigger unit) need infrastructure for their developments, so GFRD construction could be absorbed too, to do that.

Sun and MTB now calls..make hay etc before tomorrows rain etc. :-)

Dave
(middle name Russell, not a doc, though have the handwriting of one apparently. ;-) )

[marksp2011] 21/9/2019 13:23

Dr

So what is the value of a construction company that has demonstrated a 2% margin,had to write off WIP and lose money on contracts, paid dividends out of cash it didn't have and then racked up debt until it needed a rights issue?

Things will have to change very markedly before rump GFRD is worth investing in.

I made a big mistake here as I thought they would sell construction and invest in housebuilding not the other way around. All of the construction companies do the same trick (those that don't collapse that is)

[dr_smith] 20/9/2019 20:42

In general contaxt, if you take a company and split it in two, each company does not necessarilly have a positive value on NAV basis (as opposed to market valuation).

If there are legal cases against GFRD at the time of transfer to BVS (if it transpires) I think it probable those bringing the action would have legal right to block such transfer until cases closed, to ensure the assets are there for them to pay out any damages/costs.

Should that become a real threat to BVS interest, I think it would be possible for an underwriter to give those concerned parties an indemnity that should their case be succesful, they will meet any shortfall of monies due from GFRD.

That would come with a big price tag for BVS/GFRD, and as we have seen, both GFRD and (Scottish)gov are aware of crazy legal costs that benefit neither party, so they will both be keen to resolve asap.

Back to BVS, GFRD share price correlation:
The "IF" factor also carries a "WHEN" factor and these also come into the share price
See my post 5411 above where I call this "Discount Factor" in my formula.
Both discount factor and value of remaining construction have to be taken together when looking at difference between GFR and BVS sp's.
Ignore the discount factor and market perception of construction value will come out wrong.

IMO
Dave

[rjwoodrjwood] 20/9/2019 18:25

That's exactly the basis on which I made a small GFRD investment today......but I honestly believe there will be a revised or alternative proposal yet.

[dasty1] 20/9/2019 17:30

Not sure how you list a share at -10p! Essentially, if you want to buy a bvs share and you think the deal will go through, then you should buy gfrd share even if you have no interest in gfrd construction. You are getting that for free, or even less than free.

[rat attack] 20/9/2019 14:32

Actually the div is 35p and at a 669.5p closing price with BVS at 1122p the rump is valued at -10p now after the dividend!!! Negative Value!!! What a deal!!!

[dasty1] 20/9/2019 13:53

Oops. My hasty formula earlier missed a crucial element. It still results in 10p, but I should have spelled it out more fully. The formula is GFRD share price minus (0.575 x bvs sp) minus 30p dividend. It’s actually about 7p now! Future gfrd is now at 7p!

[highlands] 20/9/2019 10:25

These are worth at least a tenner! Well undervalued right now!

[highlands] 20/9/2019 10:24

Also potential 100m plus from outstanding claims

[drectly] 20/9/2019 09:36

I think that is his point, it is showing how IF the deal goes ahead, the remaining part of GFRD is potentially very undervalued. How undervalued will probably only be clearer once all skeletons are out of the cuboard and their cost fully identified.

[highlands] 20/9/2019 09:33

You haven't taken the 300m into account?

[dasty1] 20/9/2019 08:45

It is BVS X 0.575, minus 30p dividend = 10p. That was yesterday though. As I type, the numbers have slightly changed because the shares of bvs and gfrd are up 2%.

[garycook] 20/9/2019 02:23

dasty1,How do you calulate a 10p valuation for the GFRD Constuction business ???

[dasty1] 19/9/2019 20:21

Ok, I know the bvs deal is way off and full of ifs and buts, but if it happens as described, and if gfrd still issue it’s planned dividend, then future gfrd (minus linden minus dividend) is now trading at about 10p. Wow. Surely bod don’t see their remaining company trading at 10p and worth £10m mkt cap? Does the market have so little faith in this deal happening as planned? Or is future gfrd really only worth 10p? I’ve topped up. I know there is a risk of all deals off, but I’d only likely sink to 550-600 price range at worst. The odds seem favourable to me of a gain.

[spudders] 19/9/2019 09:57

KIER having an effect here today imo