Galliford Try

Where we land

Galliford Try builds roads, water works and public buildings in the UK. Over five years it has lifted its yearly operating profit, the profit left after running the business but before interest and tax, from 8m to 49m. It also holds more cash than it owes, which is unusual for a contractor and important to how it wins work. Yet the share price, read plainly, assumes that earnings will shrink over the coming years. We think the price undersells this turnaround, and we award it gold.

What the business is

All of the company's revenue sits in a single line, infrastructure construction: water treatment and pipework, highways, and buildings such as schools, hospitals, defence sites and prisons. Much of it is won through frameworks, long-running agreements where a public body or regulated utility picks a small panel of contractors and hands out projects to them over several years, rather than putting every job out to a fresh contest.

Construction is a business of thin slices. Of every pound of sales, about 9 pence is left once the direct costs of doing the work are paid, which is the gross margin. After the costs of running the company itself, the operating margin is around 3%, or 2.5% on our more precise figure.

What stands out is how steady the gross margin has been. Over five years it has had a middle value of 7%, typically moving no more than a point either side. For a contractor, whose profits can be wiped out by a single badly priced job, that steadiness is a large part of the story.

Why now

The force most likely behind the business today is the UK water industry. Regulated water companies are carrying out a large five-year investment programme covering pipes, treatment works and sewage overflows, and Galliford Try holds places on several of their frameworks. That is our reading of the figures rather than something the company has reported, but the pattern fits.

Analysts covering the shares have been moving in one direction, upwards. On quality, meaning its returns, its balance sheet and the steadiness of its results, the company ranks among the strongest we rate.

The tension is on growth. Its standing on growth against every listed company has fallen sharply over the past year as sales have stopped rising as fast as they did. The shares have been held in our Gold Income 10 since September 2026 and still qualify. The question is whether a better, more careful business can keep growing profit once the easy gains in sales have slowed.

The case for

The core of the case is a record. Twelve-month operating profit rose from 8m in June 2021 to 49m in June 2026, with only a small dip in 2023. Net profit, what is left for shareholders after everything, rose from 10m to 41m over the same stretch. This is a company that has climbed steadily out of a weak position rather than bouncing once.

The climb came from two sources at once. Sales grew at 11.5% a year over three years, so the company was doing more work, but profit grew far faster, so each pound of work was also earning more. More volume and better margins together are what separate a real turnaround from a business riding a busy market.

Those who follow the company closely are growing more confident. Over the last 45 days, forecasts were raised 11 times against a single cut, and the consensus points to earnings per share rising 7.6% next year.

The shares have reflected that, rising near the top of the market over three months and up 37% over twelve, which points to a genuine strengthening in how investors see the business rather than a brief rebound from a low.

Where the growth could come from

The best explanation for where the company is now is the UK water spending cycle. Steady upward revisions and modest expected earnings growth fit a contractor turning a full order book into gradually better margins rather than chasing volume. Water frameworks tend to give long-running work in which much of the cost is reimbursed by the client, carrying less risk than fixed-price contracts where the builder absorbs any overrun. That makes water the clearest reason earnings could keep growing even though group sales growth has slowed to 3%, although our figures do not separate water from highways or building, so its exact size is not visible.

Margin is the second engine, and with sales growing only modestly it may matter most. After past losses on fixed-price jobs, the company's approach rests on choosing bids carefully, relying on frameworks and accepting lower-risk contract terms. Rising fuel and road-surfacing costs are now testing it: if those rises are passed on to clients under framework terms, the analysts' upgrades should hold; if they get stuck inside fixed-price contracts, margins slip.

Public-sector building is the large, steady base beneath both. Schools, hospitals, defence estate and prisons are placed through national and regional frameworks and depend on government spending decisions. More defence and prison work could add volume, while squeezed departmental budgets or delays to school and hospital programmes could slow it. This is most likely what decides whether group sales growth picks up again.

The cash pile supports growth more quietly. The company has used its surplus for dividends and for buying back its own shares, which spreads the same profit across fewer shares so earnings per share can rise faster than profit. A strong balance sheet also helps win framework places, because clients check a contractor's finances before trusting it with years of work. The test is whether average cash holds up alongside continued buybacks rather than being swallowed by money tied up in running contracts.

Further out sits a smaller investments arm that co-invests in and develops affordable and mixed-tenure housing with housing associations and councils, along with public infrastructure projects. It is an option rather than an engine. UK government support for affordable housing could give it a pipeline that also feeds building work to the rest of the group; new partnership schemes being signed, and the company describing that pipeline as a meaningful contributor, would show it becoming more than a side business.

The case against

The first problem is how little the company keeps from each sale. Its operating margin of about 2.5% is below every listed peer, whose margins range from 3% to 9%. With gross margin at 9.0% and net margin at 2.1%, a small slip in contract pricing or costs would take a large share of profit.

The second is growth. Sales rose only 3.0% over the past year, well below the three-year pace, and the company's growth standing against the wider market has fallen over three, six and twelve months, most sharply in early March 2026. A turnaround built on margin can run for a long time, but not forever without sales underneath it.

The third is price. At 17 times earnings, the shares cost more than most peers while growing more slowly. Bouygues, STRABAG, Kajima, Obayashi and Taisei trade at 11 to 12 times earnings; only HOCHTIEF and ACS are dearer, and both have much stronger growth behind them.

There is a more forgiving reading. The whole business, including its cash and debt, is valued at just 0.3 times a year's revenue, but at 5.1 times the accounting value of what shareholders own. That gap shows investors paying for high returns on a small base of equity: return on equity, the profit earned on shareholders' money, is 30.5%, and net cash is larger than equity itself. Among its peers only STRABAG matches that position. But it means the rating rests on those returns lasting.

What the price assumes

One way to see what the market expects is to ask how much earnings would need to grow for the shares to be fairly priced in five years, if the price stayed where it is and the shares then traded at 18.5 times earnings, the middle value across every profitable listed company we cover. On that basis, the price only requires earnings to shrink by about 2% a year for five years.

Put as a level, the price implies earnings per share of 0.37 in five years. If the recent trend in operating profit simply continued, earnings per share would reach 0.87, 233% of what the price requires, implying growth of about 16% a year. That is the company's past carried forward, not a forecast, and the slowdown in sales is good reason to doubt the trend will run at full pace. But even the analysts' gentler forecast points up, while the price assumes down.

Investors have already moved some way, with the shares up 33% over six months. Even so, the gap between what the price assumes and what either the trend or the forecasts suggest remains wide.

The other side of the medal

The risk we would watch above all others is the margin. At about 2.5%, the thinnest in its peer group, it leaves very little room to absorb rising fuel and materials costs if contracts fail to pass them on.

It matters because the whole case rests on margin: with sales growing slowly, profit growth depends on keeping more of each pound. Brent crude has climbed to $123 a barrel, up 88% over a year, and fuel and road-surfacing costs are following, so the lower-risk contract terms behind the recovery are being tested now rather than in theory. A contractor keeping 9 pence of gross margin on each pound does not need a large cost shock to lose much of its profit.

It would show first as a stalled or falling operating margin while sales held steady, and as any sign from the company that cost increases are not being recovered. Analysts cutting forecasts on that account would confirm it.

What to watch

The most telling sign is whether operating margin keeps edging up while oil keeps raising fuel and materials bills. If it does, contracts are passing those costs to clients and the model the turnaround rests on is working under pressure. The oil price is the early warning: the longer it stays high, the more that test matters.

Alongside that, watch water spending. The water companies' programme moving from design into construction, water clients' spending ramping up, and water work growing as a share of the order book would confirm the most likely explanation for the company's growth. In public building, new defence and justice work adding to the order book, rather than simply replacing education and health jobs as they finish, would suggest sales growth can pick up from its current pace.

Our reading would be wrong if the operating margin slipped back towards the levels of 2021 to 2023, or if analysts began cutting forecasts while sales growth stayed near 3%. Together, those would say the profit climb has run its course.

The numbers

The same industry, for comparison

Research for information, not personal investment advice or a recommendation to buy, sell or hold any security: see Important information. Data as at 31 October 2026.