Contrarians ready to declare the worst was over for support services group Interserve (IRV) have received some bad news. In a catastrophic trading update, management has warned of “a realistic prospect" that the group will not meet the net debt to adjusted cash profit ratio required by its financial covenants. Investors recoiled at the news, sending the shares down 36 per cent in early trading on the day of the announcement.
The update reiterated problems that were flagged as recently as September. The support services division has suffered a sharp decline in performance due to “the cost of contract mobilisations, margin deterioration and contract performance in the justice department”. The construction division, meanwhile, saw further reductions in operating profit as a result of challenging market conditions. The group announced a £35m addition to its ever-increasing provision against the 'energy from waste' business which was exited in August. This is on top of the £160m provision taken in 2016.
Since the announcement, however, the tide of public opinion looks to be turning. Analysts at Canaccord Genuity upgraded the company’s shares to a speculative buy citing “significant upside potential”, while Goldman Sachs reduced its short position in the company marginally. The shares recovered 17 per cent the day after the trading update on news of a £227m contract win with the Department of Work and Pensions.
