Berenberg cuts Interserve's target price but leaves rating at 'buy'

Interserve on Friday said expectations for its UK construction division had been “significantly adversely impacted” by a further deterioration in its Glasgow energy from waste contract.

As a result it will take a £70m exceptional contract provision in the first half with a similar level of cash outflow spread across 2016 and 2017.

Berenberg said the announcement was “an unwelcome surprise” but reiterated a ‘buy’ rating for the stock, noting that the contractual problem was an isolated issue that had not changed guidance for underlying profitability.

“While issues at the company range from poor cash conversion to minimum wages, Middle Eastern exposure and problem contracts in construction, the news does relate to a specific contract and does not fundamentally change our view that the potential sale of the Equipment Services division later this year could unlock value,” Berenberg said.

Shares fell 5.25% to 312.05p at 1036 BST.