Hercules’ Q3 update follows upbeat interim results in June and gives us further confidence in our forecasts for the current year (we make no changes to estimates). Further contract successes have been achieved across the Group and Hercules looks to be well positioned to benefit from the new government’s infrastructure and housebuilding commitments over the coming years.
Labour supply, the Group’s largest division, delivered strong growth in H1 (revenue +25%), and has reported continued success during Q3. The Civils Projects division continues to win work for its major water clients, notably Thames Water and Anglian Water, with £7.9m of contracts awarded to the business across the Q2 and Q3 periods - this is an attractive sector, given the urgent need for investment in this area, where Hercules has a strong market position. The Hercules Construction Academy in Nuneaton (launched in January ’24) has made a positive impact with the local community since launch and has also been appointed as an approved training provider.
Today’s update references the new government’s housing and infrastructure plans, which should benefit Hercules as a leading supplier of labour for the UK infrastructure and construction sectors. We also note a recent uptick in construction sector sentiment (PMI reading over 50 for past four months), which may suggest an improving outlook for this important market.
We reiterate our 55p Fair Value / share estimate and note the attraction of a 4.7% dividend yield, unusually high for a smaller company with Hercules’ growth profile.
