Carillion clinching new contracts

The firm has had a strong second-half which will make up for the slow start to the year. 

Carillion building site
Source: Bloomberg

The company will reveal its fourth-quarter trading update on 9 December and announce its full-year figures in March 2016. Traders are expecting revenue of £3.86 billion and an adjusted net income of £146 million. These estimates equate to a 10% jump in revenue and a 17% rise in adjusted net income.

Carillion had a relatively quiet start to the year as it is reliant on government contracts, and the lull in public sector spending ahead of the general election in May held the company back. Despite few contracts coming on the market due to the political uncertainty in the UK, Carillion still managed to register a double digit increase in revenue and underlying pre-tax profits in the first six months of the year.

Since posting its first-half numbers, the company has won £1.7 billion worth of contracts and it is confident it will achieve its full-year target. Its outlook for 2016 is also bullish.

Carillion clinched contracts at home for upgrading the rail and road network, and the group was awarded contracts in the Middle East through its UAE joint venture. The gap between Carillion and its rival Balfour Beatty is widening as the latter issued another profit warning in July. Balfour’s rejection of Carillion’s takeover offer last year has proved fruitful for Carillion.

Equity analysts are very bullish on Carillion, and out of the 11 recommendations, seven are buys, three are holds, and one is a sell. The average target price is 312p, which is 11% above the current price. Investment banks are also very bullish on Balfour Beatty, and out of the 9 recommendations, four are buys, four are holds, and one is a sell. The average target price is 303p, which is 14% above the current price.

Technical analysis from Joshua Mahony MSTA, Market Analyst at IG

Carillion shares have been range bound since breaking out of a symmetrical triangle in early September. With price rotating between the two swing lows of the triangle, this looks more like a long-term bearish consolidation owing to the entry direction. As such, a medium-term bearish view holds, which would be confirmed with a close below 294p. Should that occur, support levels of 286p and 278p are the next in view.

Alternately, a close above 320p could provide the necessary signal that we are set to see some form of recovery, where resistance levels of 327p, 335p and 359 are the next major resistance points. Until we have seen a breakout, it seems prudent to expect more of the same and thus any intraday reversal patterns at either 320p or 294p seem likely to draw yet another reversal within the range.

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