Now is the perfect time to buy Jarvis shares - if you believe some City analysts. Chief executive Paris Moayedi appears to have successfully navigated the company through a tricky period following the resolution of a costly overtime dispute with its rail maintenance and renewals workers.
Moayedi is no stranger to adversity, having saved Jarvis from financial collapse with a management buyout in 1994.
The group announced last week that the recently resolved dispute with the Rail Maritime & Transport Workers' union had eaten an estimated £8M hole in the group's profits. Jarvis shares fell 15.7% as a ripple of anxiety spread through the market.
But on Monday this week, Jarvis was reported by analysts to be in robust shape. Resolution of the RMT show-down had delivered the company a flexible, competitive labour force. It is thought to be well positioned to consolidate and even increase its share of work in the rail sector.
The City generally believes that the construction, maintenance and facilities management company has been a success since the management buyout. Some analysts are even surprised that share prices are not higher.
While opinion has rallied behind Jarvis there have been voices of caution. Jarvis' growth under Moayedi's stewardship has been remarkable. In the 1996/97 financial year turnover was £70M. This year it is expected to be £750M. Much of its growth is attributable to the acquisition of companies like roads maintenance contractor Streamline and rail contractor Northern Infrastructure Maintenance. Has the firm expanded too much too fast?
Meanwhile, Jarvis' sustained, aggressively priced competition for work, particularly in the rail sector, surprised competitors. The firm's margins, they argued, must be too thin to make their strategy for market growth viable for long. Was Jarvis' profits warning symptomatic of a deeper malaise?
Jarvis' profits have grown steadily. Last year's pre-tax return was £36.7M on turnover of £355.2M. This will be topped by figures for the year to the end of March which are due out in June, despite the profit warning. Jarvis' own stockbroker, SBC Warburg Dillon Read, forecasts profit before tax, goodwill amortisation and exceptional items at £55M; another broker, Peel Hunt, estimates profits will be down from £62.7M to £56M. Predictions of £77M profit to March 2000, and of £88M to £89M the following year, are expected to hold good.
Expectations that Railtrack will start to step up its infrastructure spending programme go some way to explaining why Jarvis' future is looking good. Providing Jarvis hangs onto its 15% share of rail infrastructure work business will grow in line with activity. As top performer for seven months in Railtrack's contractor league table it is reckoned the firm could enlarge its share of maintenance and renewals work to 25%.
Moayedi claims that the way the RMT strike was handled and resolved could work in the company's favour. The dispute, which centred on pay for overtime, delivered a settlement where workers would earn a higher, set-level wage in return for working any time, anywhere.
Jarvis responded to the strike by flying a rapid response maintenance team around the country in helicopters. Moayedi believes this demonstrated a high level of commitment to its client in the face of adversity. The flying squad ate into profits, but was good for client-contractor relations, he says.
Jarvis' flying squad antics should in fact be seen as a demonstration of the firm's commitment to providing service and mitigating risk, and helps justify Jarvis' normal profit on sales of 10%, Moayedi argues. 'If the client gets good service he will accept reasonable profitability.'