Interserve (LON:IRV) has had its target price cut by broker Liberum after the embattled outsourcer reported that its debt pile had grown in the last quarter and that its exit from the energy-from-waste sector was dragging on.
The support services and construction group on Friday said it expects its year-end net debt to be in the range of £625mln-£650mln – up from £614.3mln at the end of June when it guided to a full-year net debt of between £575mln-£600mln.
In a note to clients, analysts at Liberum increased their net debt forecast (net of £23mln discount) from £558mln to £618mln or £641mln gross of the discount.
“The energy from waste delay has resulted in a £7mln increase to net debt as a result of a penalty. There has also been an increase in receivables due to a weak collection on a Saudi education contract and at equipment rental,” Liberum analysts wrote, adding it is also worth remembering that Interserve has US$350mln of unhedged US private placement loans, which can put material pressure on the equity.
“We reduce our target price from 50p to 35p to reflect the higher debt but valuation is close to irrelevant given the financial risks,” the analysts added.
Interserve, which has been under severe pressure since the high profile collapse of Carillion, said it expected to make significant operating profit improvement in 2018.
The company, which has been hit by significant delays to a number of the energy from waste plants it is building in the UK, said construction of all the projects was now complete and are close to being handed over.
Analysts at Peel Hunt said ahead of a more detailed model review it anticipates maintaining its 2018 estimates for Interserve with a small reduction to 2019 forecasts.
Since Debbie White joined Interserve as CEO in September 2017 to turn the company around its share price has tumbled from around 170p to close to 35p today.
Interserve shares were 4.6% down at 33.38p in mid-morning trade.