Interserve PLC (LON:IRV) saw its shares rubbished today after the support services and construction group revealed the costs of exiting its energy-from-waste business will be more than double earlier forecasts.
The firm lost a quarter of its stock market value, dropping 86p to 249.25p as it raised the provision for the business to about £160mln from £70mln.
Interserve said it was getting out of the business in August, after it was affected by cost over-runs and delays.
The big hike followed a review of operational developments at the energy-from-waste business and an assessment of the impact of litigation related to a terminated contract in Glasgow.
But analysts at Liberum said even that “may not be enough”
In a note to clients, they said: “We can have no confidence the provision is adequate.”
Interserve also warned that it could be harder and take longer to get money back from third parties as its main gasification subcontractor, Energos, was in administration.
Problematic …
The Liberum analysts continued: “We struggle to see how this can be anything but problematic given the challenges around gasification and the insolvency of the sub-contractor.
“While construction may be substantially complete in 2017, the experience of Costain has demonstrated that issues on warranties can last well beyond construction completion.”
They concluded: “No equity raise and facility has been increased but does not offer much headroom.
“We leave numbers unchanged at this stage, but potential for higher interest costs and re-fi costs.
“No mention here of trading elsewhere, but we think it is challenging.”
Liberum cut its target price for Interserve to 230p from 270p and reiterated a ‘sell’ rating on the stock.