Brokers support John Morgan's call for the City to value construction companies at their true worth.
Morgan Sindall boss John Morgan has urged the City to take another look at the construction sector, arguing that improving long-term returns make many firms attractive investments.

Analysts at stockbrokers Peel Hunt and Seymour Pierce supported Morgan, arguing that the share prices of contractors such as Morgan Sindall and Balfour Beatty were significantly undervalued.

Morgan Sindall this week posted record profit figures for the sixth year in a row, beating analysts' expectations. It made a pre-tax profit of £15.36m, up 52% on 1999, from turnover of £655m.

Morgan said he was optimistic that his group, which includes fit-out, construction and housing arms, would attract more City interest. He said: "The stock market doesn't get it wrong for too long. I think the City is waking up to the fact that construction is good value." He said construction company profits were up on earlier years, with the better firms winning more long-term work from clients.

Morgan's comments were underlined by a jump in Morgan Sindall's share price, up 29p to 359, and by analysts at two City stockbrokers.

Leslie Kent, an analyst at Seymour Pierce, said housebuilders and contractors were beginning to be rerated. He said: "People are now saying these companies aren't too bad after all." Peel Hunt analyst Stephen Rawlinson said the City was realising that contractors had relatively safe long-term incomes – particularly those with PFI contracts for public services.

He said: "It's already happening, look at Balfour Beatty. It was 122p on 30 January, now it's 158p." Rawlinson advised Peel Hunt clients that the true value of Morgan Sindall shares was about 440p. They were trading at 330p before the results announcement.

David Taylor, an industry analyst at stockbrocker Teathers & Greenwood, said the change in the City's attitude was noticeable.

He said: "We're certainly seeing that the attitude is distinctly more positive – especially if there's a PFI involved." Morgan told Building that although his company's three groups had done well, there was room for substantial expansion. He added that this was likely to come through organic growth.

The company has been tipped by some analysts to buy a civil engineering firm, but Morgan said that was just one option.