Rok

Restructured and repositioned, Rok, the self-styled Nation’s Local Builder, managed to maintain profits on lower sales in an extremely tough 2009.

Hard-hit by the recession, Rok, bossed by indefatigable CEO Garvis Snook, has had to take some tough decisions of late, protecting margins at the expense of revenue and focusing on operations offering reliable sales and superior returns.The fully listed firm’s repositioning has involved a major scaling back of capacity in construction and a strategic shift towards the more profitable, resilient repair, maintenance and improvement markets, where spend is non-discretionary and growth potential attractive.

The benefits of these initiatives and cost cutting showed through in creditable financials for the year to December, revealing maintained ‘adjusted’ pre-tax profits of £20.4m and operating margins upped 52% to 3.2%. In another plus, total dividends were held at 2.4p.

Sales reduced by 30% to £715m, though this reflected the deliberate downsizing of construction capacity. The no-nonsense Snook believes the UK regional construction market is in for a rough ride over the next few years, with the drive to pare public sector debt likely to cancel out any benefits of recovery in the private sector.

Against this backdrop of economic maelstrom, Rok still has a highly encouraging £2bn of secured orders and framework deals in the bag and says a reassuring 85% of its forecast 2010 sales are now ‘either secured or probable’. Furthermore, whilst urging caution, Snook says ‘the year has kicked off reasonably well’.

Investors might expect pre-tax profits of £21m on £723m turnover this year, producing earnings of 8.5p (2009: 8.4p) and a 2.45p dividend. Those estimates mean the depressed shares are selling on a forward multiple of less than 5 times and yield 5.7%. Yes, the industry remains troubled, yet the robust Rok looks well placed for a return to growth and investors willing to re-visit the story should be rewarded long-term.