James Fisher swings to a loss but there are positive signs

It might be slightly crude to liken James Fisher’s (FSJ) full-year assessment to a post-operative review, but management believes that the divestiture of non-core businesses has already resulted in streamlined manufacturing and supply chain functions. But it’s debatable whether this rationalisation has had a pronounced impact on financial performance, although it could conceivably be a question of timing.

Management notes that the sale of the engineering group’s nuclear decommissioning business negatively impacted the refinancing of its bank debt with all the attendant problems that entails. The sale was completed for a nominal sum, and a £6.4mn provision was included in the results to cover potential claims/settlements under parent company guarantees. Arguably, the difficulties here show why the successful implementation of the group’s strategic objectives necessitates beefed-up risk management functions, presumably a priority for the new chief financial officer, Karen Hayzen-Smith.

There were mixed outcomes in terms of trading volumes. The energy and defence divisions performed creditably, although new business at the latter division was constrained due to delays in customer procurement processes. Another rationalisation measure – the exit of lower-margin maritime transportation contracts – had a negative impact on the top line, although, by definition, it will be a temporary effect.

The group swung to an operating loss of £18.6mn against a profit of £24.7mn in the prior year. Management highlighted a “stronger underlying business performance”, but James Fisher headed into negative territory due to a £28mn goodwill impairment, coupled with increased net financing expenses.

There were certainly positives from an operational perspective, and an adjusted forward rating of 14 times consensus earnings isn’t prohibitive given implied price/earnings (PE) ratings over the following two financial years, but the debt overhang casts a long shadow. However, the company intends to pay down a portion of the debt once the recently announced sale of RMSpumptools Ltd is finalised. Sell.

Last IC view: Sell, 345p, 21 Sep 2023