Start-up delays in Energy caused by commissioning issues at third-party biomass plants (out of the company’s control) and reduced passenger numbers at London Southend Airport in FY18 and FY19 result in us lowering our FY18 underlying EBITDA estimates by 6% to £134m. However, the case for Southend’s growth as London’s sixth airport remains strong and we retain our 2022 estimate of passenger numbers at more than five million pa. Four energy plants are being commissioned in 2018, which should lead to strong volume and earnings growth. Equally, delays in plant start-ups do not affect the value of the contracts or cash flows derived from them in the long term.

Rail is a limited contributor to overall growth, but the collapse of Carillion should present some opportunities for the division to capture additional contract revenues.

Third-party plant delays and slightly lower passenger numbers are understandable. However, they should not distract from the long-term value proposition, in which both divisions should produce strong, reliable cash flows for long periods, attracting yield investors and relatively high multiples. We have adjusted our valuation to account for modelling and estimate changes, and it moves to 285p/share (based on DCF). We note that the strong dividend payout of 18p/share (and 7% yield) needs to be partly funded by asset sales over the next four years before growth in operating cash flows can fully take over – this should be achievable given considerable non-operating/investment assets. Our valuation suggests 10% upside. This valuation would imply an EV/EBITDA multiple of just 10.9x in 2022.