May Gurney Integrated Services

Investors seeking to back a business with exceptionally high earnings visibility and a burgeoning order book should look no further than Norwich-based infrastructure services specialist May Gurney.

Providing essential maintenance and enhancement services to public and regulated sector clients, May Gurney’s earnings have been largely insulated from the downturn, since more than 95% of its business arises from dependable long-term deals. Already with a £1.4bn forward order book, the group continues to secure significant contracts.

May Gurney has just strengthened its water industry presence with two new framework contract wins with Wessex Water under its AMP5 programme. CEO Philip Fellowes-Prynne says the contracts, involving asset upgrades, maintenance and new build works, are worth up to a combined £65m over five years and offer up extension potential.

Wessex Water is the second major water-related contract announced in as many months, following the recent renewal of a £170m long-term contract with South West Water, and follows a raft of wins across sectors including highways and environmental towards the end of 2009.

Strongly cash generative, May Gurney, which grew profits 21% to £8.5m in a solid first half, which it ended with almost £25m of net cash in the coffers, looks set to improve pre-tax profits from £20.2m to £21.4m and earnings to 22.08p (2009: 20.51p) in the current year to March. Analysts have forecast a further dividend hike to 5.64p (2009: 5.13p).

On those numbers, the shares, which have eased off from recent 277.75p highs, are swapping hands for less than eleven times prospective earnings. Given the group’s enviable earnings visibility, stellar AIM track record and healthy bid pipeline, that rating is far too ungenerous. Strong buy.