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Share Centre share of the week: Carillion

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Graham Spooner, investment research analyst at The Share Centre, picks Carillion as share of the week.

“This week we added Carillion to our ‘buy’ list as it has long been our favoured stock in the support services sector. Although the company remains cautious in the shorter term, especially over government spending, it believes it is well positioned for the longer term. The order book is expected to be over £18.5bn and opportunities remain to grow the pipeline of contracts, which is worth around £38bn.

“As a result of merger talks with Balfour, which subsequently came to nothing, the group released interim results in August which was earlier than expected. First half profit rose by 5% to £67.5m, while the dividend increased by 2% to 5.6p. A trading update in December stated that sales and the operating margin would be similar to last year and despite difficult trading conditions, the company continue to win new orders.

“We recommend Carillion as a ‘buy’ for medium risk investors seeking income and growth. The group expects operating margins to increase in the future and a solid order book is providing a good level of visibility. For a support services company, the current yield of 5.4%, allied to an undemanding valuation, is attractive.”

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