Carillion’s high profile bankruptcy on Monday has certainly hit the headlines. Politicians on both sides of the aisle have been throwing stones at one another. An official investigation into the fiasco has been announced. But perhaps worst of all, the future of 10,000s of hard-working employees, pensioners and businesses (eg Balfour Beatty, Speedy Hire, Galliford Try, etc) have been affected.
However, contrary to yesterday’s 10%+ plunge in the stockprice, Gattaca said this morning that its net balance sheet exposure to Carillion was “less than £100,000” – with existing contracts contributing Net Fee Income of around £0.5m pa.
To us, given Gattaca is forecast to deliver FY18 NFI of £79.3m (£74.7m LY), then this is not material. Sure, it’s something to watch, but management have been carefully monitoring the situation for some time, and accordingly arranged credit insurance to cover any bad debts. Moreover they have been “actively engaging with the relevant Carillion counterparties to ascertain how to support the related underlying projects” in order to ensure continuity of service.
Consequently, we make no change to our numbers or 380p/share valuation, and in fact have been impressed by the Board’s risk management strategies and prompt actions. Indeed we look forward to the H1’18 pre-close trading statement on 8th February, where we expect to hear news of a gradually improving demand picture - led by continued strength in International and UK Engineering, alongside further recovery in UK Technology.