Interserve insists it remains 'on track' after hitting 30yr low
By Oliver Haill
Date: Tuesday 13 Nov 2018
(Sharecast News) - Interserve Group insisted that it still expect a "significant" profit improvement this year, after the government contractor missed a deadline on a joint venture.
Interserve's shares fell to a 30-year low on Monday and after falling even lower to 27.94p on Tuesday, the company put out a statement to try and reassure investors.
Management insisted that the implementation of chief executive Debbie White's strategy and 'Fit for Growth' transformation programme remain "on track". Interserve said that it "continues to expect a significant operating profit improvement in 2018".
A report from the BBC earlier suggested the company is looking to raise new cash but at least one former investor was sceptical the funds could be secured, even at discounted terms.
Sparking recent concerns, joint venture partner Renewi last week said Interserve had missed a deadline for construction work on an energy-from-waste JV in Derby, though there had been "significant progress" on the plant.
EfW has been an area from which Interserve struggled to complete an exit in the first half of the year, though its said some risks "still remain" as it looks to complete all sites in the second half of the year. Investors worry whether the Derby delay could lead to an additional write-down on that contract and scupper recent progress elsewhere.
At the FTSE-listed company's half-year results in August, White said her transformation plans had already delivered "material cost savings" that were expected to reach £15m this year and should result in a "simpler, more focused and more effective" group. Underlying operating profits of £40.1m were down 29% on the same period last year but up from the £11.5m in the second half of last year.
Interserve completed a refinancing in April, securing committed borrowing facilities of £834m.
Net debt hit £614.3m at the half-year stage, net of £31.5m financing fees that have been deferred, and White expects it to rise to £650-680m in the second half, subject to the timing of asset disposals, but directors said it would improve to £620-630m by the end of 2018.
Analyst Neil Wilson at Markets.com said that comparisons between Interserve and the collapsed Carillion had been all too easy to make, with both diverse businesses operating on thin margins.
"Short sellers have raised their bets - usually a bad sign, but not in itself cause for alarm," Wilson said, noting April's debt refinancing offering some room for manoeuvre despite growing debt.
Wilson said a cash call is "almost certainly a must" but is likely to be highly dilutive for shareholders but took some cheer from considering the government's role.
"[The government] has blood on its hands relating to Carillion and does not want another big failure. A series of large contract wins for Interserve this year are important, not just in juicing earnings but in placing the government in a position where - post-Carillion - it cannot sit back and let IRV fail. One of the big criticisms of government was awarding Carillion contracts that masked its underlying malaise. Ministers would have to carry the can if Interserve fell. In more normal pre-Brexit times it could also bring down the government, post-Carillion."
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