Beleaguered business services company Interserve (IRV) may finally have turned a corner after issuing a bad news-free trading update. Management is predictably bullish, saying that its support services division remains ‘robust’ and in line with expectations.
Shares wrote about its share pricing diving 30% in January as the firm lost a key client.
ANALYSTS REMAIN SCEPTICAL
Broker Liberum says that it is leaving its fully diluted earnings per share estimate of 55.3p unchanged. This predicts a 12.5% drop on last year’s figure.
Liberum also maintains its earnings before interest and tax (EBIT) forecast for support services of £79.3m in the UK and £2.4m internationally. This amounts to a 61% fall on last year’s figure and is cautious due to wage costs, especially the national living wage.
The broker also points to Interserve’s drop in EBIT in its equipment services division despite saying the company has good momentum in the UK, Middle East and Asia. For this year, the division’s EBIT figure is forecast to drop 11.3% to £43.1m.
BRIGHTER SPOTS
Interserve announced several significant contract wins, including a five-year deal with Network Rail worth £65m. In addition it has a one year extension on its facilities management deal with the Department of Justice, worth £16m.
But the company has continued its recent rhetoric over outside factors that could impact new business, such as the upcoming general election. Management consultancy Tussell Consulting has identified that Interserve are exposed to £116m of central government contracts that are due to expire in the next 12 months. A new government could scupper the company's chances of those contracts being rolled over.
The current year to 31 December 2017 price to earnings (PE) ratio is 4.2-times, based on JP Morgan's 58.6p earnings per share (EPS) forecast. That implies that the market has little idea what EPS the company will deliver this year and with no dividend support, Interserve faces a long battle to regain the trust of investors.
