Companies: DRV   

We live in a very litigious age – and nowhere are legal spats and squabbles as rife as in the building industry. The construction of everything from landmark public buildings to industrial plants and spanking commercial towers, involves endless contracts between the client, the contractor, subcontractors, suppliers, local government and others too numerous to mention.

The list of things that can go awry is equally abundant, starting with cost and timing and ending with subjective items such as the quality of the workmanship. Recent high-profile construction debacles in the UK include the Scottish Parliament building in Edinburgh, the new BBC HQ and the Millenium Bridge in London and, of course, the as yet unfinished Wembley Stadium.

But while the contract wrangles and writs are depressing for all those involved, they are music to the ears of Driver, a provider of commercial and dispute resolution legal services to the global construction sector.

Driver has been busily recruiting experts to beef up its overall offering this past year, and its skills are so much in demand that not only has it become highly cash generative and dividend paying, but it is forecast to deliver strong earnings growth this year and next.

Driver isn’t an overnight success. Although it only floated in 2005 (brokered by WH Ireland), the Lancashire-based business has actually delivered five years of profitable growth by selling its in-demand services through a fee-based model into all sectors of UK construction. On top of this, it has a strong presence in Europe and the Middle East, having opened an office in the United Arab Emirates (a booming place for construction – think of Dubai) in 2005.

Driver employs a wide variety of construction professionals (surveyors, architects, etc) as well as lawyers and barristers, all of whom proffer advice on claims preparation and defence. It also supplies expert witnesses to cases and can sit as an adjudicator and mediator. The company also does a slug of work planning and managing construction and engineering projects.

Stephen Driver, chief executive, argues this is great business to be in, since virtually every capital investment project brings with it a variety of problems or issues relating to cash, time or quality. Moreover, he argues his business is ‘almost recession proof because as cash gets tight in construction, contractors and subcontractors are keen to maximise their returns and they need our services’.

Under his guidance, Driver has grown into one of the three leading consultancies in the UK, and now works for seven of the top ten UK contractors by level of turnover.
This growing dominance was writ large over the full-year figures to September. Sales leapt 14 per cent to £9.2 million, ahead of forecasts, with Driver undertaking a higher volume of projects driven by buoyant construction markets in the UK and Dubai. Pre-exceptional pre-tax profits grew a modest four per cent to £1.5 million, with the true progress masked by recruitment costs – on a like-for-like basis profits rose 23 per cent to £1.78 million.

The recruitment activity was intense in the period, with key personnel coming in at all levels. According to Driver, the AIM listing helped attract six high-profile directors from market rivals, which has laid the platform to ‘accelerate our ambitious expansion plans for the business both in the UK and overseas’.

Recruitment is key to increasing fee-earning capacity, and the acquisition of key staff rather than corporate entities avoids unnecessary shareholder dilution.

Gross margins increased from 44.2 per cent to 46.4 per cent and the group closed the year with net cash of £690,000 and £5.9 million of net assets. This balance sheet strength enabled Driver to hit the dividend trail, declaring a 2.85p payout for investors.

In terms of its actual business focus, transport projects constituted 40 per cent of sales, and high-rise development 20 per cent. In addition, Driver dabbles in nuclear power and property, and plans to take a larger slice of business from the information communication technology, insurance and finance arenas.

For September 2007, WH Ireland forecasts a rise in pre-tax profits to £2 million from a top-line of £11.25 million, giving 27 per cent earnings growth to 5.6p and a likely dividend improvement to 3.5p. The following year, investors should look for £2.4 million pre-tax from £13.5 million turnover, 21 per cent earnings enhancement to 6.8p and a 3.75p dividend. This means Driver trades on a 2008 forward multiple of 17, and boasts solid yields of more than three per cent for both this year and next. Buy.

Driver Group	AIM	£17.81m	67.50p	2.00p
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