Shares in Carillion PLC (LON:CLLN) continued to freefall today, extending this week’s slide by another 10% and further lining the pockets of short-selling hedge funds after Monday’s revenue warning, dividend suspension, and CEO’s exit, with broker RBC predicting a cash call and possible construction exit from the firm.
In early afternoon trading, following a 40% drop on Monday and another 30% slide yesterday, the FTSE 250-listed group’s shares were down another 10.1%, or 7.85p to 70.05p – giving over a 60% fall for the week so far.
READ: Hedge funds raking it in again today, as heavily-shorted Carillion's shares drop sharply once more
The analysts at RBC have been overtaken by events in chopping their target price for Carillion back to 100p, while maintaining a ‘Sector Perform’ rating on the stock in a note to clients published today.
But, they said: “The scale of the issues are significant and therefore it is no surprise that the Board will now consider all available options."
“In our view, the most likely course of action will be a rights issue, but we would not rule out a more dramatic restructuring (an exit from Construction?), or potentially a combination of both.”
The analysts said they were sticking with their rating and reduced target price “given significantly higher than expected average net debt position and profit downgrades.”
They added: “The actions announced to reduce net borrowing alongside the strategic and operational review look sensible, but it does not feel these will be adequate to remove all concerns.”
READ: Carillion shares plunge as it warns on full year revenue and chief executive departs
The RBC analysts said Carillion’s board has been “decisive on the provision required and the actions needed to reduce average net borrowing levels. However, doing this organically is unlikely to suffice. In our view, a rights issue is the most obvious course of action.”
They said: “We believe that £600mmln could be required and assuming a 40% discount to the current share price, would imply an EPS base of 9.2p (67% dilution to new forecasts).”
The analysts added: “We would also not rule out the disposal of its Construction operations - given these are the main source of risk.”