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In the driving seat
Although the construction industry has hardly been a lucrative sector to be involved in for the majority of companies recently, Driver Group has managed to carve an interesting niche for itself as a provider of dispute resolution services. With an industry which represents 6 per cent of GDP, there are often disputes where the outcome is material to the parties concerned. A trading update in late June highlighted some challenges in the immediate future and unsurprisingly this disappointed the market. There had been high hopes with regards to what could be achieved even in the current downturn and when optimism was dampened the share price retreated. However, looking at the bigger picture, prospects over the longer term are still intact. Potential contract wins, such as opportunities in Europe and South Africa, could now see an increase in earnings forecasts. With the shares having reached all-time lows in August, there is undoubtedly scope for strong upside if these do start to materialise. Historically, the business has been reliant on Driver Consult, a specialist in the provision of commercial and dispute resolution services to the construction industry. Services can be provided at any stage of a dispute and include advising on whether there is a claim for either claimants or respondents, the preparation and defence of claims as well as negotiation and settlement of claims.
Interim results covering the six months to 31 March 2009 were released in early June. Record half year revenue and profit was achieved with revenue increasing by 49 per cent to £11.25m (2008: £7.53m). Underlying pre-tax profit came in at £1.30m (2008: £0.92m), with underlying earnings per share being 4.1p (2008: 2.7p). An increased interim dividend of 1.0p per share (2008: 0.95p) was declared. Net borrowings at 31 March were £0.93m versus £1.04m a year earlier.
Driver Group is a well managed business and has a sound track record. It is pushing ahead by exploiting opportunities both in the UK and in other markets, most notably the Middle East. Recent changes to the operational structure demonstrate the fact that the company remains hungry for further success. The directors, including Stephen Driver, own around a fifth of the business and this is encouraging.
A share price of 75p translates into a market cap of less than £20m. This level looks achievable in the near term and would represent a healthy return from the current level. Buy ahead of the interim management statement which is due to be released in October.
WARNING: Opinions expressed are the writers’ judgments at the time of writing. The information does not constitute a personal recommendation and readers should seek professional advice as to the suitability of the investments.