FINANCIAL ANALYSIS

Financial Analysis

Financial Analysis

ROK Plc

ROK is a holding company. Through its subsidiaries, Co. is engaged in the provision of response maintenance, planned repairs and refurbishment and new build services in the United Kingdom. Through its joint venture companies, Co. is engaged in the development of commercial property.

In our view, Rok Plc entered 2006 in good financial shape. Following a year of substantial investment, the business is now well positioned to take advantage of the significant growth opportunities we believe are available in all of its divisions over the next few years. We believe that the company can deliver double-digit earnings growth over the next three years, which in turn should drive a significant re-rating of the business. 

Within its final results to the end of December 2005, Rok reported clean PBT of £16.8m, in line with expectations. EPS of 43.3p on a diluted basis was ahead of our expectations, of 41.6p. All divisions performed as expected, with Rok Build and Rok Developments showing good levels of profit growth, whilst Rok Maintenance saw a strong top line performance, offset by significant investment for the future potential of the division. 

The Building business looks well positioned to show further growth in 2006. Revenue will be driven by branch openings and market share gains from existing operations, in our view, whilst margins should continue to improve as the profile of branches matures and as recent acquisitions bed-down. We are forecasting 19.5% profit growth from this division in 2006.

A buoyant commercial property market should, continue to support top line growth at Rok Development in 2006. We believe that the pipeline of projects continues to be strong, providing visibility out to 2007. While we believe that margins will edge back from the very high levels experienced in recent years, they will remain above the company's medium-term average. In terms of PBT performance for 2006, we are factoring in a 6.3% increase. This may prove conservative. 

Strong top line growth over the next 12 months should be supported by a significant recovery in operating margins. The business has spent the past 12 months investing for growth and we believe is now in a position to leverage off some significant recent contract wins. We are forecasting profit growth of 98.9% from this division in 2006.  

Given the significant growth prospects on offer at the group over the next few years, we believe that Rok should trade on a premium to the sector. Our target price methodology is based upon a sum of the parts analysis. At 750p, there is 30% upside from current levels, placing the stock in Buy territory. Rok is our key Construction sector pick within this review. 

Ratios

12/31/2008

12/31/2007

Variance

Compound Annual Growth Rate

Item

GBP

GBP

GBP

%

3 Year

5 Year

ROA % (Net)

-3.27

4.76

-8.03

-168.7

-

-

ROE % (Net)

-12.68

17.36

-30.04

-173.04

-

-

ROI % (Operating)

503.71

568.95

-65.24

-11.47

1.99

-

EBITDA Margin %

0.58

3.2

-2.62

-81.87

-0.45

-0.26

Gross Margin %

100

100

0

0

1.09

0.55

Quick Ratio

0.94

0.99

-0.05

-5.05

-0.01

0.01

Current Ratio

1.08

1.14

-0.06

-5.26

-0.03

-0.03

Net Current Assets % TA

4.47

8.5

-4.03

-47.41

-0.27

-0.23

LT Debt to Equity

0.7

0.36

0.34

94.44

0.37

0.12

Total Debt to Equity

0.77

0.38

0.39

102.63

0.33

0.09

Total Asset Turnover

2.22

2.29

-0.07

-3.06

0.02

-

The Current ratio

Low values for the current or quick ratios (values less than 1) indicate that a firm may have difficulty meeting current obligations. Low values, however, do not indicate a critical problem. If an organization has good long-term prospects, it may be able to borrow against those prospects to meet current ...