Numis places Interserve 'under review'

Numis has placed its rating and target price on Interserve ‘under review’ after the company highlighted contractual issues.

Interserve said expectations for its UK construction division have taken a significant hit due to a further deterioration in its Glasgow energy from waste contract.

As a result of problems relating to the design, procurement and installation of the gasification plant, as well as challenges with the supply chain that will result in further cost overruns and delays, Interserve now anticipates a £70m exceptional contract provision to be taken in the first half of 2016. This will result in a similar level of cash outflow spread across 2016 and 2017.

The FTSE 250 support services and construction group said that taking full account of the cash impact of the contract provision, net debt is likely to be around £35m higher than previously guided at both the half year and the year end.

Yet Interserve said trading at the Support Services business remains robust and in line with expectations, Equipment Services continues to have good momentum and the International Construction business is performing as expected.

Numis said: “While disappointing, we believe the provisioning is prudent and will draw a line under these issues but clearly materially impacts 2016 estimates.

“The shares will clearly be weak today and we put our recommendation under review for now. However, all other divisions are trading in line with expectations and we regard this as project specific in the current year with no direct relevance to the remainder of the group.”

Shares plunged 20.73% to 312.50p at 1104 BST.