Shares in support services and construction group Interserve (IRV) continue to bump along at 30-year lows, down another 7% at 33p, after today’s third quarter trading update.
Management talks about ‘strong profit growth’ and cost savings from the Fit for Growth self-help programme being on track but the UK construction business is still making losses and equipment services profits are down on project delays.
The troublesome Energy from Waste project is almost complete but yet again there have been additional delays which mean Interserve has incurred more financial penalties.
The real elephant in the room however is the company’s enormous debt pile.
By the end of the year net debt is expected to be £625 to £650m against a previous target of £575 to £600m. To put this in context, Interserve’s market capitalisation is only around £50m and this year’s operating profits are expected to be £90m.
The company says it is looking at 'all options' to improve its capital structure and will present its deleveraging plan in early 2019.
The problem for investors is that the further the shares fall the bigger any capital increase will need to be to shore up the balance sheet, meaning more dilution.
Assuming that a refinancing does buy the company time to see its For for Growth programme through it still looks like a long and bumpy road ahead for shareholders.
