1255 Thursday 13 December 2018
Following on from our previous article on the troubled UK contractor, Interserve, we are taking look at the fallout following their plea for help and what has happened to their stock value since.
A week ago today, IVR.L opened trading at 25.90, nearly a whole £1 lower than their 2018 highs of January. This is a price that could well have been expected as the contracting industry saw a fall in outsourcing after the demise of Carillion causing the government terminate a probation service contract with the firm earlier than expected at a new date in 2020. And when you combine this with an FCA investigation launched against the firm, it could hardly have been unexpected when they announced losses in August.
But when Interserve sought help from creditors and the government this past Sunday, their stock plummeted a further 70% down to 6.50. At this point, it wasn’t just investors that were worried that the firm could become ‘Carillion Mk 2’, both creditors and the government have since jumped to the aide of the embattled firm offering to work on wiping of debt and the issuance of further contracts respectively. They were moves that made logical sense for all parties involved as a second collapse of a contracting firm, one that employs 45,000 within the UK (75k worldwide), could be disastrous not only for the sector, but also for the UK economy.
Jump forwards to this morning and IVR.L traded at the symbolic level of 13.00 a figure that doubles that of Monday mornings trading. Following a few days of the aforementioned positive news for the company, Interserve hope to have a solid plan in place at the start of 2019, both in terms of new contracts to be undertaking and in terms of the debt restructuring.
If, and I stress the word ‘if’, Interserve are able to successfully negotiate their way out of their current problems and into more encouraging territory, the current price could provide a great value for investors. The last target price set by a broker was by Liberum Capital on 23rd November at the 35.00 level and while that price is currently under review, it would represent almost triple the current value.
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