Shares in consultancy firm RPS (RPS) have crashed 28.8% to 147.4p on profit warnings for 2018 and 2019 linked to high investment costs and rebranding fees.
Over the third quarter, trading was disappointing with fee income of £139m and £12.8m in profit failing to reach the board’s expectations.
In a bid to turn its fortunes around, RPS is planning to invest in staff, IT systems and potentially use M&A to spark growth.
Profit before tax and amortisation in the year to 31 December 2018 is expected to be ‘slightly below’ analysts’ forecasts of £55.4m, while fee income is anticipated to come in below estimates of £582m.
The company has also suffered from a loss of staff from acquired businesses after the settlement of deferred considerations linked to these deals. As a consultant in areas ranging from large oil and gas projects to national heritage, RPS is very much a people-driven business.
In 2019, the company says fee income will be higher than 2018 although costs of more than £2.5m and a one-off global brand relaunch expenses to the tune of £2m are expected to hit profitability.
Profit is forecast to be in line with 2018 - marking a 7% cut to from the £59.6m previously pencilled in by analysts.
DEEP CUT IN PROFIT FORECASTS
Liberum analyst Joe Brent has slashed pre-tax profit forecasts by 10.2% from £55.7m to £50m in 2018.
The dividend per share look set to remain unchanged from last year at 9.9p. Forecasts for 2019 are slashed from £60.1m to £49m.
Numis analyst Julian Cater has also scaled back his forecasts by a similar amount. He stays at 'add' on the stock but cuts his price target from 290p to 230p.
He comments: 'Crucial to driving future organic NFI growth and improving profitability will be a reduction of staff attrition, which we estimate is c.15% for the group, but believe to be appreciably higher in some businesses.
'Investment in HR and branding should help but the payback will be over the medium-term.'
