In a note to clients, the broker said not much had been left for equity holders after the embattled construction and support services provider saw its losses soar in 2017 to £244mln from £94.1mln the year before after being hit with £300mln in impairment and one-off charges for poorly priced contracts.
“We believe that management has saved the business, but has not left much for the equity. There are all sorts of nasties in the FY results; £25mln of fees, 20% warrants, a ratchet in the cost of debt and PIK notes” the broker said.
“Investments have fallen in value, de-leveraging is slow and the actuarial pension can still surprise negatively” Liberum added.
The broker concluded that in order to stabilise the company would have to conduct a rights issue, although with the current register, it would be more akin to an initial public offering.
Liberum also slashed its target price for the group in half to 90p from 180p to reflect the new risks, with concerns still swirling in the market that Interserve could follow the likes of Carillion into administration.
These concerns were eased slightly in April, after the firm signed a £830mln refinancing deal that included a £300mln cash and loans facility.
In lunchtime trading Wednesday, Interserve shares were up 0.4% at 86.3p.