Construction is not a sector that inspires much love among private investors. Margins are thin, contracts can blow up, and the graveyard of failed contractors is well populated. Carillion casts a long shadow.

Which makes Galliford Try worth a closer look, because it is doing something unusual for a builder: generating cash, avoiding risky work, and upgrading profit expectations with each passing statement.

The £577m company employs around 4,000 people across two main divisions. Building constructs schools, hospitals, prisons and defence facilities, while Infrastructure works on roads and, increasingly, water projects. It supplies all 14 of the UK's major water and sewerage companies.

Last week's trading update told investors that profits for the year just ended will land at the top of analysts' forecasts, at around £53m. Revenue grew 3 per cent in a year when management had expected none.

The stand-out feature is the balance sheet. Galliford Try holds net cash of about £259m, has no borrowings, and its revolving credit facility remains untouched. That cash pile is nearly half the market value of the entire company.

Panmure Liberum, the company's broker, responded to the update by raising its price target from 650p to 690p, against a current share price of 580p. Analyst Joe Brent lifted his earnings forecasts for the next two years by 10 per cent to 11 per cent.

His longer-term maths is more striking. Management targets at least £2.2bn of revenue and a 4 per cent divisional margin by 2030. Run those numbers through the model and earnings per share could reach 52p to 69p, according to Panmure. That would be roughly triple the 17.7p achieved in 2023.

Where does the growth come from? The order book has risen from £4.1bn to £4.3bn over the year, covering about 90 per cent of budgeted revenue for the year ahead.

The government's prison-building programme is a rich seam, with 14,000 places planned by 2031 at a cost of up to £10.1bn. Defence spending is rising, and the November Defence Housing Strategy points to a major upgrade of forces' accommodation.

Water may be the biggest prize. Regulated spending in England and Wales is set to rise from £59bn to £104bn in the current five-year investment cycle, and Galliford sees its addressable market swelling from £23bn to £57bn.

Shareholders are paid to wait. The forecast dividend yield stands at 4.6 per cent, rising above 5 per cent next year, and the company completed a £10m share buyback in April.

Now for the cautionaries, and in construction they matter. Operating margins remain wafer thin at around 2.5 per cent, so a single problem contract can wipe out a lot of profit. The wider industry backdrop is soft; the UK Construction PMI spent much of last year in contraction territory. Slow government decision-making has already held back growth in the Building arm.

Investors should also note that Panmure is Galliford Try's corporate broker and is paid by the company, so its enthusiasm should be weighed with that in mind.

The shares have re-rated over the past few years, and at 11 times next year's forecast earnings they are no longer in the bargain basement against peers such as Kier or Costain.

Yet strip out the cash and the underlying business is valued at a fraction of that multiple. For a company upgrading forecasts, paying a 5 per cent yield and sitting on a quarter of a billion pounds, the market's caution looks like a hangover from the sector's past sins rather than a verdict on Galliford Try itself.

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