Structural steel firm Severfield-Rowen (SFR), which worked on the construction of the Shard and London 2012 Olympic Stadium, has crashed 7% to 73p after its third profit warning in as many months. The £65 million cap engineer indicates it may seek to raise up to £50 million through a share placing.


Market wisdom has it that profit warnings come in threes, with the implication that all the bad news is out of the way by the third warning. Yet analysts preach caution ahead of clarity on Severfield's financing position alongside next week's full-year results (28 Feb).


The engineer's difficulties, which cost group's chief executive officer Tom Haughey his job last month (23 Jan), have largely resulted from cost over-runs on the 736ft-tall Cheesegrater skyscraper in Leadenhall Street in London.


In January, the group announced it was reviewing 70 of the largest contracts in its £209 million order book and the results of this review, announced today (19 Feb), revealed a £20.1 million negative impact on 2012 numbers and an anticipated £8 million cash outflow in 2013. Prior to this update the market was expecting the group to report 2012 losses of £5 million to £8 million.


The group has already announced net debt stood at £30 million as of 31 December 2012 and management has been in discussions with a number of shareholders (representing 56% of the group's share capital) regarding a potential equity fundraising of up to £50 million. The group's lending banks have agreed to waive certain covenants on its existing bank facilities and discussions on amended banking facilities continue.


N+1 Singer analyst Mark Fleetwood, who has a 'sell' recommendation on the stock, says: 'The quantum of the impact from these issues is concerning, particularly in the wake of recent negative updates. Severfield is the market leader and the indicated shareholder support is encouraging, although it is difficult to assess potential equity value until there is more clarity on the funding situation.'


Issue Date: 19 Feb 2013