John Laing Group (LON:JLG) expects the FY19 NAV to be broadly in line with management expectations on a constant currency basis (Edison FY19e +11%). JLG also believes it remains on track to meet its 2019–21 targets for investment commitments and realisations. Both the investment pipeline and the market for secondary assets are also said to remain strong. The positive outlook is reflected in the premium rating of the shares. Our forecasts remain unchanged.
Business description
John Laing is an originator, active investor in and manager of greenfield infrastructure projects. It operates internationally and its business is focused on the transport, energy social and environmental sectors.
No change to guidance
JLG’s guidance (2019–21) for investment commitments (c £1bn) and realisations (broadly in line with commitments) remains unchanged. So far in FY19, realisations have totalled £131m, at prices in line with the portfolio valuation, including JLG’s first disposals of operational assets in the US and Australia. Commitments to new projects have proceeded more slowly, with only £7m completed to date. However, JLG believes the pace of commitments will pick up and expects two investments, with a value of £130m, to complete in Q319.
JLG remains confident of outlook
JLG pre-close update highlighted operational issues with renewable energy assets in Germany and Ireland (wind levels) and Australia (transmission losses) with a total valuation of c 18.5% of the portfolio (at 31/12/18). JLG is evaluating the potential impact on the portfolio value of these projects and considering opportunities to mitigate any potential impact. Set against these difficulties, JLG reported positive developments with several of its public-private partnership (PPP) projects, including Denver Eagle P3, Sydney Light Rail and New Generation Rolling Stock. Overall, JLG expects the FY19 NAV to be broadly in line with management expectations on a constant currency basis (Edison FY19e +11%). Beyond FY19, the investment pipeline (particularly the US and Australia) and the market for secondary assets are both stated by management to remain strong
Valuation: Premium to NAV
JLG’s share price has performed strongly over the last year following the takeover of JLIF and the shares now stand at a premium to both its historical NAV of 323p/share (+15%) and our forecast figure for FY19e of 360p/share (+3%). The shares also now trade above the peer group average premium of 10% (to historical NAV) and remain towards the top end of the stock’s historical trading range.
