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Interserve laid out by Glasgow kiss

The support services group has been hit by contractual problems north of the border.
May 6, 2016

Markets were spooked in the early part of this year following analysis from Liberum that cast doubt on the sustainability of Interserve's (IRV) Middle Eastern revenue streams. In the event, however, it was a problem closer to home that sent shares in the support services group tumbling on Friday.

IC TIP: Hold at 283p

Mounting problems at Interserve's UK construction division are set undermine first-half earnings. The group is taking a £70m provision in relation to a waste-to-energy contract in Glasgow, where subcontractor issues will result in further cost overruns and delays. Worse still, management anticipates a "similar level of cash outflow spread across 2016 and 2017".

The £154m project for client Viridor is now months behind schedule. And although management is "pursuing every opportunity to mitigate [the] situation", the scale of the project suggests that it's unlikely to be turned around overnight.

Separately, the group said that it was closing a manufacturing site in Ellesmere Port that handles a range of fabrication, cutting and welding techniques and procedures. Interserve blamed the decision to close on economic challenges currently being experienced throughout the waste-to-energy and oil & gas industries.