A strong performance from the core support services business and continued recovery in the equipment rental show why we kept faith with shares in Interserve. With the order book up 7 per cent from the year-end, to £6bn, and free cash flow rising from £44.1m to £53.9m, broker N+1 Brewin upgraded its full-year forecasts by 2-4 per cent to adjusted pre-tax profits of £76m, giving 44.6p, and we retain our buy recommendation.
Support services reported double-digit revenue growth to £588m. As profit margins improved from 3.1 per cent to 3.4 per cent, operating profits jumped 24 per cent to £21.2m. Adrian Ringrose, chief executive, reiterated the target of 5 per cent margins by the end of 2013, adding that he is hopeful of a decision on major prison outsourcing deals in the next four months. Interserve is bidding for three prison deals with a total contract value in excess of £1bn over 15 years.
Equipment services is also improving, with revenues growing by 10 per cent and operating profits up 15 per cent to £6.8m. Mr Ringrose expects margins of 8.3 per cent to improve to 12-15 per cent. Construction is still a difficult market and, despite revenue flat at £366m, operating profits fell from £18.7m to £14.3m.
INTERSERVE (IRV) | ||||
|---|---|---|---|---|
| ORD PRICE: | 330p | MARKET VALUE: | £418m | |
| TOUCH: | 329-331p | 12-MONTH HIGH: | 339p | LOW: 269p |
| DIVIDEND YIELD: | 5.9% | PE RATIO: | 7 | |
| NET ASSET VALUE: | 198p* | NET DEBT: | 16% | |
| Half-year to 30 Jun | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2011 | 0.98 | 30.1 | 21.2 | 6.0 |
| 2012 | 0.93 | 32.6 | 19.6 | 6.4 |
| % change | -5 | +8 | -8 | +7 |
Ex-div: 19 Sep Payment: 24 Oct *Includes intangible assets of £240m, or 189p a share. | ||||
