■ Net debt to be higher at year-end
■ Divesting assets to focus on core businesses
■ New chairman
WSP’s shares fell 6 per cent after releasing a pre-close statement that indicated profits for 2010 would be in line with analysts' expectations but that, due to slowing cash collection, net debt would be higher than consensus forecasts. This uncertainty around debtor collections will also continue beyond the end-December year-end, management said but, overall, the group will remain well within its £150m loan facility.
Having recently presented a five-year strategic plan to investors, the group now aims to divest its non-core activities, which are low margin, and concentrate on property, transportation and infrastructure. Already, WSP has sold a loss-making testing laboratory in the UK environment & energy business, while the industrial process business CEL is being restructured and integrated into the UK operations after experiencing a tough trading environment during the downturn. An exceptional hit will be taken in the full-year figures to account for the writedown and costs.
Current chairman David Turner will retire at the 2011 annual general meeting. He's to be replaced by Tony Thorne, previously chief executive of packaging group, DS Smith, and currently non-executive director of power station company, Drax.
Brewin Dolphin says…
Hold. We expect full-year profits to be in the range £34m-35m which is the current market consensus. We retain our forecast for pre-exceptional pre-tax profits of £35.1m and EPS of 36.3p. Markets and trading patterns are expected to be broadly maintained in 2011 and management is currently guiding for flat profits year-on-year. For 2011, we retain our below consensus pre-tax profit forecast of £32.7m and EPS 34.3p to factor in additional caution in the UK public sector. The shares offer an attractive yield of over 4 per cent, which is over twice covered, and provides a reason to hold them ahead of a cyclical recovery in the group’s markets - which we hope to see increasing evidence of during 2011.
Execution Noble says…
Buy. WSP’s geographic and sector diversity continues to support resilience in overall trading. Furthermore that business spread makes it one of the better placed consultants for an eventual private sector-led recovery. WSP generates a high proportion of revenues from international markets (around 64 per cent) and the property sector (44 per cent), with comparatively low exposure to the UK public sector (18 per cent). The shares trade on a forward PE ratio of 10.6, compared with a peer group average of 10.4. And, while we've lifted our net debt forecast from £58.5m to £71.m, that still represents a comfortable net debt to earnings ratio of 1.3 times.
WSP has a decent dividend yield and the group could benefit from a private sector-led recovery in the UK and Sweden, but growth has yet to really take off. So the shares - at 345p - and trading on 10 times expected earnings, look up with events for now. Fairly priced
Last IC view: Good value, 326p, 26 July 2010