Numis Securities has added to the welter of City downgrades for embattled civil engineer Carillion PLC (LON:CLLN), as it chopped its share price target and slashed its profit forecast.
The broker’s analysts reckon the stock - currently changing hands for just over 48p - is worth 45p, down from 60p. It is sticking with its ‘hold’ recommendation, but paints a far from rosy picture for the business.
READ: Jefferies believes it is it too late for Carillion “to say I’m sorry ... and could we get it together again?”
In a note to clients, the Numis analysts said: “Management seems confident that the disposal of Canada could occur soon, which will provide some relief, but this needs to be set against downgraded estimates and higher average net debt.”
They added: “Uncertainty over the possibility of further trading issues and the inability to repair the balance sheet through equity issuance are genuine concerns and we continue to advocate switching out of Carillion into peers that have illogically been impacted by Carillion's issues, in that we see these as company-specific factors.”
Numis’ team have cut profit forecasts for this year and next by 23% to £108mln (for both years), reflecting reduced income flows for all units but with UK Construction and the Middle East region most heavily impacted.
It said the company’s management expect it to be ‘compliant’ with the covenants governing its current debt arrangement.
Borrowings likely to balloon
However, Numis is worried that borrowings are likely to balloon to around £1bn from £775mln-£850mln, which might then precipitate an emergency cash call.
“Disposals may provide some alleviation, but the key concern remains that equity issuance at the current depressed share price would be highly dilutive,” investors were told.
Earlier this week, US broker Jefferies International said it estimated a rights issue of up to £440mln could be required to right the Carillion ship.
That would water down existing investors by around 40%.
Jefferies added: “The longer term turnaround plan appears credible, but success is dependent on the group’s ability to help itself in the first phase of the turnaround, before looking to shareholders/outside investors.”
Reiterating a ‘hold’ rating on the stock, it too cuts its target price for Carillion to 45p from 80p previously, saying: “Valuing Carillion remains more art than science.”