COURSEWORK COVERSHEET – GROUP SUBMISSION

Complete all details below, attach securely to your work, and submit to the relevant box outside the SMCSE Course Office (A302).
First Name: Surname: Student Student Signature (see declaration below):
No:
Craig Ihezie 120055754

Dimitri Khater 170044955

Constantinos Ioannou 170046738

Peter Pei- Hsu 170025524

Josiah Johnson 150056497

MSc Construction Management

Programme:

Module Project Funding & Finance Module EPM 932

Title: Code:

Assignment Coursework 3 – Group 3

Name:

Lecturer: Rupert Bruce

Submission date: 28/03/2018

DECLARATION:
I confirm that the work is my own, that I have not copied the work of others, nor allowed others to copy my work and that I have
referenced the work of other authors used in an appropriate way. I have also read and complied with the guidelines on plagiarism
as set out in the student handbook. I understand that the university may make use of plagiarism detection software and that my
work may therefore be stored on a database which is accessible to other users of the same software. I certify that the word count
is correct.
Students should be aware that where plagiarism is suspected, a formal investigation will be carried out, and action may be taken
under the university’s rules on Academic Misconduct. This might result in penalties ranging from mark deduction to withdrawal from
the university.
Lecturer/Marker to complete
Feedback to Student: Feedback within: Feedback on Moodle:

Group 3
If penalties were applied: Provisional Mark:
Original mark: _____________________________
Marks deducted: ___________________________
Reason for deduction: _______________________

Q1)
Construction as @ 23/03/2018
Market Cap
Company TNW £m (£m) P/E ratio R.H Rank Comments

Balfour Beatty 1,066.0 2025.08 77.06 Full Mkt 1 Annual 2017, iii.co.uk
Kier Group 683.4 1097.4 86.98 Full Mkt 2 Annual 2017, iii.co.uk
Galliford Try 575.5 930.05 15.91 Full Mkt 3 Annual 2017, iii.co.uk
Laing O'Rourke 313.6 Private 5 Annual 2017
Morgan Sindall 316.6 594.825 14.726 Full Mkt 4 Annual 2017, iii.co.uk

Average P/E 48.669

Agg Mkt Cap 4647.355
Hist. mkt sector P/E 33.84
Average TNW 591.0

Support Service as @ 23/03/2018

Market Cap
Company TNW £m (£m) P/E ratio R.H Rank Comments

Amey UK 376.8 Subsidary 2 Annual 2016

Interserve 464.0 169.903 NA(-1.33) Full Mkt 1 Annual 2016, iii.co.uk
Mears 209.6 425.67 16.17 Full Mkt 3 Annual 2017, iii.co.uk
MITIE 89.8 663.8 NA(-2.95) Full Mkt 5 Annual 2017, iii.co.uk
Wates 70.7 Private 4 Annual 2016

Average P/E 16.17

Agg Mkt Cap 1259.383
Hist. mkt sector P/E
Average TNW 242.2

Group 3
 Building (Materials) as @ 23/03/2018
Market Cap
Company TNW £m (£m) P/E ratio R.H Rank Comments

Grafton Group 506.9 1,910.15 19.717 Full Mkt 3 Annual 2016, iii.co.uk
Jewsons -38.3 5 beta.companieshouse.gov.uk
MKM Group 16.1 4 Annual 2017, iii.co.uk
Travis Perkins Group 2,860.3 3,745.90 240.98 Full Mkt 2 Annual 2017, iii.co.uk
Ferguson plc 3,436.0 13,860.67 16.739 Full Mkt 1 Annual 2017, iii.co.uk

Average P/E 92.48

Agg Mkt Cap 19,517
Hist. mkt sector P/E 27.6
Average TNW 1,356.2
Construction Material Support Serv.
Average
P/E 48.67 92.48 16.17
Agg Mkt Cap (£m) 4,647 19,517 1,259
Average TNW (£m) 591 1,356 242

Comments on Q1

From the tables above I can be seen that the building material sector has the largest price / earnings ratio,
the sector has the greatest aggregated market capital and the largest average total net worth. The P/E ratio
is worked out by diving the current share price by the reported earnings per share (EPS). It is a measure of
the amount required to invest to receive an earning on the share. Companies with a negative P/E show that
the company is making a loss, and will usually not be reported in the financial reports. The support service
sector shows two out of the three have a negative P/E ratio; Interserve and MITIE have P/E ratios of -1.33
and -2.95 respectively, where on the contrary the construction and material sectors have far greater P/E,
Market capital and total net worth. It is not surprising to see the support service industry with negative P/E
ratios in light of the recent Carillion collapse. The material sector which heavily relies on the construction
industry have shown high P/E ratio.

The three sectors that have been compared work in harmony with each other and depend on one another
yet there is a great contrast in the findings. The construction industry closely relates to the current
economic climate, which can be seen to fluctuate over time in correlation with the economic environment.

Group 3
Q2) at 26/03/2018
Company TNW (millions) TNW £m Market Cap Market Cap (£m) P/E ratio R.H Rank Comments
Spain
ACS Esp 4,984 4,361 €9.93B 8,687 12.22 Main BME
FCC Esp 937 820 €3.74bn 3,272 31.61 Main BME
Germany
Bauer Ger 434 380 €333.37m 291 14.03 Main FWB
Hochtief Ger 2,534 2,217 €9.53bn 8,340 22.69 Main FWB
India
Larsen & Toubro 537,801 5,808 ₹1.81T 19,548 25.45 Main BSE
Tata Group 58,214 629 ₹5.38T 58,104 21.6 BSE
China
China Railway Group 148,715 16,701 ¥123.64B 822 8.81 Main SEE
China State Con. Eng 25,670 2,310 HK$ 49.18B 4,426 8.2 Main SSE
USA
Flour Corp USA 1,794 1,259 $7.67B 5,389 41.41 Main NYSE
Granite Con com USA 923 648 $2.14 1,504 31.81 Main NYSE
France
Lafarge Holcim FRN 30,975 23,014 CHF 31.32B 23,280 N/A Main SIX
Vinci SA 17,006 14,880 €46.45bn 40,633 15.91 Main Euronext
Sweden
Peab Con Swd 9,380 804 kr 21.12B 1,812 10.17 Main Nasdaq Stockholm
Skanska Con com 27,185 2,330 Kr 69.621B 1,425 16.61 Main Nasdaq Stockholm
South East Asia
Semen Indonesia 30,574,391 1,565 Rp 57.24T 2,931 19.14 Main IDX
Siam Group 301,825 6,791 597.600B baht 13,489 10.86 Main SET
Average P/E 19.368 IDR, ₹Rp-£ 0.0000512 USD, $-£ 0.702
Agg Mkt Cap £m 193,953 THB, Baht-£ 0.0225 EUR, €-£ 0.875
Historic mkt sector P/E JPY, ¥-£ 0.00665 CHF-£ 0.743
IND, ₹-£ 0.0108 SEX, Kr-£ 0.0857
HKD-£ 0.08999
CNY¥ - £ 0.1123

Group 3
Q2)

In comparison to the UK companies in the construction industry discussed in Question One, it is evident that the
British construction companies are not performing as good as their counterparts in the rest of the world. This
assertion can be proven by a comparison of the market capitalisation values of most of the other companies listed in
Question 2, is the largest construction companies in their respective markets. For instance, the largest company in
the UK with the highest market capitalisation value is Balfour Beatty with a market capitalisation of £2.02bn while the
rest have a market capitalisation of less than a billion. In this case, most of the companies have a market
capitalisation valued at over one billion, with South East Asian, Chinese and French companies taking the lead in this
category. Tata Group is the largest company in this category by market capitalisation, valued at £58bn, and followed
closely by the Vinci SA, which also has a market capitalisation valued at £40bn.

The differences in market capitalisation are largely attributable to the market size of the respective
countries in which the companies operate, in addition to their economic stability. In essence, the South East
Asia companies have the largest market capitalisation because of their expansive markets across most of
the leading Asian countries. China and India come at the second and third positions respectively because of
their large market size, and as such, offer a high demand for their products. It is noteworthy that China and
India have the highest populations in the world, and as such, necessary for them to invest heavily in
construction activities to cater for their large populations. As such, compared to the UK which has a
moderate economy and market size, the companies operating in these markets tend to have a higher
market capitalisation value.

Group 3
Q3)

2017 2016 2015

£m £m £m
Total Assets 1748 1627.7 1869
Total Current Asset 889.2 831.1 1099
Total Current Liabilities -1127.2 -1113.7 -1085.1

Inventory/Stock 27.9 70.3 76.4

Profit Before Tax -66.9 -245.6 12.4
Revenue/Sales 2934.6 2353.6 2885.8
Long term Debt 307.2 157.8 211

Capital Employed (Total Assets-

Current Liabilities) 620.8 514 783.9

2017 2016 2015

Overall Laing
Current Ratio = (Current Assets/Current Liabilities) 1.55 1.46 1.72
Quick Ratio = ((Current Asset-stock)/Current O’Rourke
liabilities)) 1.53 1.40 1.65 appears to be
Profitability(Profit margin)= (Profit before recovering from
tax/sales)*100 % -2.28 -10.44 0.43 a poor financial

Capital Gearing Ratio = (Long term liabilities/Capital performance in

employed)*100 % 49.48 30.70 26.92 2016 for
instance the
current ratio reduced from 1.72 to 1.46 before improving slightly to 1.55, a similar trend may be observed
using the profitability ratio which reduces from positive position of 0.43% to -10.44% before increasing to
-2.28%. In addition, the company appears to be increasingly reliant on loans, for instance the gearing ratio
increased from 30.7% to 49.5% which is the result of significant increase in long term debt. Inventories has
also reduced substantially from £70.3m to £27.9m. 2017-2018 performance for Laing O’Rourke is vital for
establishing the attractiveness of the company for potential investors. Currently the company has acquired
substantial long-term debt and is still currently operating at a loss. Therefore, significant improvements are
required for the company to become an attractive proposition for a potential investor. This may be
achieved by either an increase in revenue or a reduction in cost of sales or most likely both.

Group 3
Group 3
 Current Ratio = (Current Assets/Current Liabilities)
1.8
1.7
Assets/Liabilities

1.6
1.5
1.4
1.3
2015 2016 2017
Year

Current Ratio = (Current Assets/Current Liabilities)

1.8
1.7
Assets/Liabilities

1.6
1.5
1.4
1.3
2015 2016 2017
Year

Group 3
 Profitability(Profit margin)= (Profit before tax/sales)*100
2
0
2015 2016 2017
Profits/sale %

-2
-4
-6
-8
-10
-12
Year

Capital Gearing Ratio = (Long term liabilities/Capital employed)*100

60

50
Liabilities/capital %

40

30

20

10

0
2015 2016 2017
Year

Group 3
Q4)

Purchase price per share

Purchase Price in GPB

Country / Currency

in country of origin
No. shares bought
Share/stock name

Stock Exchange

Date acquired*

currency
Symbol
Granite
Construction Inc USA/$ NYSE GVA 29 12-02-18 59.7 £43.14
Emcor Group Inc USA/$ NYSE EME 24 12-02-18 75.23 £54.36
Morgan Sindall UK/£ LSE MGNS 1 12-02-18 1,190 £1,190.00
NV5 Global Inc USA/$ NASDAQ NVEE 123 12-02-18 40.65 £29.37
Priomoris
Services Corp USA/$ NASDAQ PRIM 53 12-02-18 24.07 £17.39
£10,000
1 US Dollar = 0.72260 British
Pounds on 2/12/2018
All calculations have been made in GBP after being converted using the
above rate
CONTINUED…
share in country of
Share/stock name

Current price per

Current price per
Aggregate initial

Current value at
Exchange rate2

origin currency

Valuation date

Variance +/- %
Trading costs1

share in GBP

Gain/ Loss
cost

Granite
Construction Inc 37.53 0.722 1288.5685 54.8 £39.60 26-Mar-18 1148.3559 -140.213 Loss
1343.8088
Emcor Group Inc 39.14 0.722 1 76.69 £55.42 26-Mar-18 1329.9887 -13.8202 Loss
£1,216.0
Morgan Sindall 35.70 1 1225.7 1,216 0 26-Mar-18 1216 -9.7 Loss
3721.3527 1229.25
NV5 Global Inc 108.39 0.722 9 55.7 £40.25 26-Mar-18 4950.6049 2 Gain
Priomoris 949.48288 8.72806
Services Corp 27.65 0.722 7 25.02 £18.08 26-Mar-18 958.21096 9Gain
8528.912 1074.24 0.107
99 7 425

Group 3
Appendix A – Laing O’Rourke Consolidated Statements

Group 3
Group 3
Group 3
Group 3
COURSEWORK COVERSHEET
Complete all details below, attach securely to your work, and submit to the relevant box outside the SMCSE Course Office (A302).

First Name:Josiah Surname:

(please print) Johnso
(please print) Johnson
Please tick as appropriate:

Student 1 5 0 0 5 6 4 9 7 No. Undergraduate: Postgraduate:

Programme: Construction Management

Module Project Funding & Finance Module

Title: Code:

Assignment Coursework 3 EPM 932

Name:

Lecturer: Rupert Bruce

Submission date: dd/mm/yyyy

28/03/2018
DECLARATION:
I confirm that the work is my own, that I have not copied the work of others, nor allowed others to copy my work and that I have
referenced the work of other authors used in an appropriate way. I have also read and complied with the guidelines on plagiarism
as set out in the student handbook. I understand that the university may make use of plagiarism detection software and that my
work may therefore be stored on a database which is accessible to other users of the same software. I certify that the word count
is correct.

Signed by student: Date:

Students should be aware that where plagiarism is suspected, a formal investigation will be carried out, and action may be taken
under the university’s rules on Academic Misconduct. This might result in penalties ranging from mark deduction to withdrawal from
the university.

Lecturer/Marker to complete
Feedback to Student: Feedback within: Feedback on Moodle:

If penalties were applied: Provisional Mark:

Original mark: _____________________________
Marks deducted: ___________________________
Reason for deduction: _______________________

Group 3
Question 5
1. Profitability= Profit before tax/revenue= -10878/46920= -23.2%
2. Working capital = current asset-current liabilities=£333839-£81775 = £252064
3. Current ratio= current assets/current liabilities=£333839/£81775= 4.08
4. Liquidity (quick/acid test) ratio= (current assets-inventory)/current liabilities= (£333839-0)/£81775 = 4.08
5. Equity ratio = long term debt/share capital and reserves = (£301,378/£288,136) x 100 = 104%
6. The ROCE has several limitations.
- In does not take into account the time value of money
- It does not take into account the period in which the revenue was made. It basically ignores the timing of money
- It uses profit rather than revenue. Profit is more susceptible to manipulation
7. This appears to be a company currently performing poorly in terms profitability but at the same time
possessing a huge amount of asset. In terms of its profitability it is currently operating at 23.2 % loss for every
revenue made. This may be attributed the high staff related cost and operating expenses or inadequate revenue
generated from operations. In addition to the losses made the equity ratio is extremely high due to the significant
amount of long term loans the company owes. This put the transportation operator in a risky position because if the
company continues to make losses then financing the debts would outweigh the revenue and therefore the business
will be at risk of administration.
On the other hand, the business currently possesses relatively are amounts of assess in relation to its liabilities e.g. the
current ratio is 4.08. The high current ratio is due to high account receivables. This may be a good sign for the
transport operator for future years as long as the company does not encounter significant difficulties getting paid their
receivables.
Question 6
a. When a product or service is provided on the basis of a credit repayment it is often necessary to ensure the
payment will be made. Creditworthiness is an assessment made by a lender to determine suitability of borrower for
receiving credit. It may be described as an assessment of the capacity of a debtor to repay its debts. It is typically
assessed using a rating system that considers several factors such as the repayment history, available assets, other
liabilities age, income, financial obligations, employment status, and types of accounts. After considering all the key
factors the creditworthiness of a borrower is depicted as a credit score. Creditworthiness is important because not
only is it used to determine whether an individual can receive a loan it also affect used by financial institutions to
determine his/her interest rate. The 3 main credit reporting agencies in the UK are Experian, Callcredit and Equifax

b. Using a project finance typical SPV Organogram (see Handouts on Moodle) state why it’s important to
understand the “creditworth” of each of the Client, the Sponsors/Developers, the D&B contractor, his supply chain
and subcontractors, and the Operations contractor(s) etc.
Creditworthiness checks are important for an SPV particularly because they are created with the aim of isolating firms
from financial risk. All parties are interdependent on each other which mean long term financial security of the SPV is
important. Considering significant funds are invested into the entity and therefore it in is essential to ensure all major
parties are financial capable of performing its obligations. For example, the clients or promoter’s creditworthiness is
important for the all other parties all they are responsible for acquiring the required funding and securing the SPV
financially. The contractor, supply chain and sub-contractors are all reliant on the sponsors for income upon
completion of their work. The SPV must also ensure the major parties responsible for delivering the project from the
construction contractors to the operations contractors will not go into administration during the project period this is
done through creditworthiness check.
Group 3
c. Who are the [key] advisers? Are there any conflicts or pitfalls for parties to be wary of in appointing advisers?
There are four groups of advisers in the SPV, the contractor’s, the promoter, the sponsors and the lender’s. The role of
advisor is to provide information to its client about the best and worst case scenarios of projects, as well as
information about the correct structure, potential risks, activities and procedures of a project. This process of using
advisor can be beneficial for the advisor’s client because the information received helps to ensure the likelihood of the
success of the project is increased. The downsides however the financial and time implications. Although there are
several benefits to having an advisor there are can be significant financial costs when an advisor is used in the form of
service fees. The higher the quality of the company providing the advice the higher the fees they may charge for
services. The use of an advisor such as a private auditor, or geotechnical increase the project length due to the time
required perform detailed investigations. There is always a risk of receiving poor advice which may lead to
complications during the project. In addition, there is a possibility of a conflict of opinion. For example the client may
disagree with the opinion provided by the advisor which could lead to a dispute.

Group 3