Interserve’s (IRV) results for 2017 made for grim reading, as reported returns, already constrained by subdued trading in the support services and construction businesses, headed firmly into negative territory after the outsourcer's balance sheet was re-assessed. So, aside from widening losses and growing net debt, the group took a non-cash write-down of £76.7m on goodwill and assets, while its contract and business review uncovered a further £86.1m in write-downs, roughly £40m of which will impact cash flows.
The prudential accounting treatment underscores the view of chairman Glyn Barker, who believes the group’s success depends on properly assessing bid opportunities; hardly a novel insight given the recent travails of sector peers Capita (CPI) and the ill-fated Carillion. Look below the bonnet, and we find the usual problems: a high proportion of intangible assets to non-current assets, a persistently high rate of receivables, and inconsistent cash conversion. You might argue that the dire full-year metrics are partly a reflection of management's “fit for growth” efficiency plan and other self-help initiatives, but we think they're less indicative of 'harsh medicine' than they are of the bidding/contractual issues that are dogging the sector as a whole.
Analysts at Numis cut their forecasts following the results announcement and are now expecting adjusted pre tax profit of £25m in 2018, giving EPS of 12.6p (from £52.4m and 29p in 2017).
| INTERSERVE (IRV) | ||||
| ORD PRICE: | 93p | MARKET VALUE: | £136m | |
| TOUCH: | 92.6-93.25p | 12-MONTH HIGH: | 250p | LOW: 53p |
| DIVIDEND YIELD: | nil | PE RATIO: | na | |
| NET ASSET VALUE: | 32p* | NET DEBT: | £503m | |
| Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2013 | 2.19 | 68.1 | 39.1 | 21.5 |
| 2014 | 2.91 | 61.9 | 32.2 | 23.0 |
| 2015 | 3.20 | 79.5 | 47.5 | 24.3 |
| 2016 (restated) | 3.69 | -94.1 | -71.2 | 8.1 |
| 2017 | 3.67 | -244 | -176 | nil |
| % change | - | - | - | - |
| Ex-div: | na | |||
| Payment: | na | |||
| *Includes intangible assets of £427m, or 293p a share | ||||
