The Morgan Sindall (LSE:MGNS) share price exploded this week. Following the release of its latest trading update, the stock soared more than 12.5% within an hour. This recent momentum has pushed its 12-month performance to over 115%! That’s quite an impressive display. So, what’s behind this growth? And should I be considering this business for my portfolio?
The surging Morgan Sindall share price
The business is a leading construction and regeneration company that focuses on developing infrastructure within urban environments. Its projects range from affordable housing to office refurbishment and highway construction. Its projects are split across five different divisions which, according to the latest trading update, have grown substantially.
With lockdown restrictions being eased as the vaccine rollout continues, many delayed construction projects are now back in full force. Its Fit Out division that focuses on renovating commercial office spaces has grown its order book to a record high of £581m. Meanwhile, Property Services and Construction & Infrastructure are both seeing strong margin improvements. Consequently, the group has seen its profits before tax surge to £53m. That’s a 238% boost compared to last year and a 46% rise compared to pre-pandemic levels.
As a result of this stellar performance, management said it “anticipates that its full-year results for 2021 will be significantly ahead of its previous expectations”. So seeing the Morgan Sindall share price take off seems is understandable to me.
The risks that lie ahead
As encouraging as this latest report was, there remain several risks to consider. One of the main threats to the business continues to be Covid-19. The vaccine rollout has indeed progressed relatively quickly in the UK. However, due to lockdown restrictions being eased, the level of infections is on the rise. In fact, the infection rate is close to its highest point since the pandemic began. This may result in lockdown restrictions being reintroduced, which would likely lead to new project delays. Needless to say, that would be bad news for profits and, in turn, for Morgan Sindall’s share price.
But even if new lockdowns do not happen, the business is still threatened by the pandemic regarding its supply chain. To ensure that construction materials arrived on time, management has had to loosen credit check requirements for suppliers. So far, this has allowed the supply of materials to keep flowing. However, with dependence on suppliers that haven’t had such rigorous credit checks, the risk of supply chain disruptions may have actually increased. After all, if a supplier goes bankrupt, project delays are inevitable. And once again, that could have some significant impact on the Morgan Sindall share price.
The bottom line
While there are some substantial risks, most of these look like short-term problems to me. When considering the growth that this business has delivered so far, the risk matches the reward in my eyes. Therefore, I would consider adding Morgan Sindall to my portfolio even after the recent share price boost.