Embattled support services company Interserve (IRV) rockets up 22.1% to 121.5p as its new management’s plans seem to have reassured investors.
The programme, ‘Fit for Growth’, is expected to deliver £40m to £50m of costs savings by 2020. This is something the company desperately needs after revealing last year that it needed more time to meet its creditor agreements.
The company anticipates a net debt position of £513m for 2017 year end.
Much of the blame for Interserve’s woes including its high debt comes from its Energy from Waste division which caused significant outflows of cash in 2017.
The new management, led by chief executive Debbie White, says that future cash flows from Energy from Waste will be broadly neutral. Not great news but better than adding to the existing debt pile.
The company says that ‘discussions with the group's lenders are progressing and a further announcement with regards to its longer-term funding arrangements will be made in due course’.
Back on course
While 2017 can hardly be described as a success for Interserve, its performance for the year was in line with (downgraded) expectations.
With the ‘Fit for Growth’ initiative, 2018’s earning per share estimate has been increased by 25% by investment bank Liberum due to the aforementioned cost savings.
Interserve is trading on 3.9-times 31.4p earnings per share forecast for 2018. With its monstrous debt pile a dividend is out of the question but this may well be the start of a turnaround for the company.
Liberum looks to be giving the company the benefit of the doubt.
It says ‘Interserve clearly has too much debt, but we continue to believe it is very different from Carillion given lower window dressing, lower restricted cash, no factoring and a small pension deficit. Management has secured a deferral of the covenant test to March 2018’.
It also expects Interserve’s banks to be ‘forgiving’ of the company.