Interserve plc (lon:irv)
Interserve About To Become A Value Trap?


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Title: Interserve About To Become A Value Trap?
Company: IRV - Interserve plc
Share Price Then: 116p
Author: Ian Smith
Date: Mon 29 Jan 2018
Comments: I have been watching Interserve for a while now and I am becoming convinced that a rights issue is coming very soon.

Debt has crept up from about £350 million to £515 million, sure there is a good reason, bailing out of a bad recycling contract but it is still debt.

Given that debt now exceeds the agreed debt to EBIDTA ratio and the recent collapse of Carillion it seems likely that shareholders would support a share issue although possibly reluctantly.

If you are going to go through a fund raising exercise it might as well be a worthwhile fund raising, £300 million would make the balance sheet quite healthy.

The numbers that seem to make sense to me are a 3 for 1 issue at 70p per share against the current price of 116p, this would raise the necessary £300 million.

During 2013-2015 the share price traded in the range of 400p – 700p which after the above dilution would equate to 100p-175p.

However it also quite possible that after the new issue the shares could drop to the issue price and stay there or there abouts leaving anyone in now sitting on a 30% - 40% loss.

Added to the merits or otherwise of supporting Interserve, many of the Interserve investors will have been in Carillion and hurt and it now seems that Capita are going to ask for £700 million. Surely some must be asking is it prudent to abandon this whole sector?
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Previous Commentaries On Interserve plc
Date Share Price Author Commentary
Mon 24 Jul 2017233pIan Smith

Interserve Still Not Recovered From Energy For Waste Exit

Interserve are an international support services and construction group they suffered a 30% drop in share price in Feb 2017 from which there hasn't yet been a recovery.

This company decided to exit from the Energy from Waste (EfW) business and allowed £160m for the consequences of this decision.

This turned a reported £79m profit for 2015 into a £94m loss for 2016 and there is also an impact on debt, requiring the company to pretty much double its debt levels up to an averge of £450m for 2017.

This overrode the fact that the underlying business looks strong with headline total operating profit of £124.2 million.

So far there doesn't appear to have been any general backlash against the company although the company expects some legal isses of the EfW exit.

Unlike Carillion who have also reported big losses from projects this drop doesn't seem so easy to understand.