Interserve is a UK services and construction company that I have been following for some time. The price has taken a big hit recently, and therefore become a lot more interesting.
What I like about the company is that more than half the revenue is in
support services, like facilities management that it undertakes on
behalf of clients. This business does not require a lot of fixed
costs, and has a lot of repeat business. The future visibility provided by its contracts allows the company to adjust its costs accordingly
and therefore not risk losing too much money.
It has been a market darling for most of its public life, but then it
invested in a segment that had a lot of losses. It has since shut down
that segment (called "Energy from Waste") but the closing liabilities
kept growing. Then softness in other segments thanks to
Brexit and increasing wages along with debt finally caused the market
to totally destroy the share price late last year.
Even in a bad year like 2017 though, operating profits should be
about £60 million, vs a market cap of £180 million right now.
Enterprise value is about £730, but most of the debt is not due for
several years, and the company is in talks with lenders for debt due in 2019 for
Since the share price fell about 80% over the last three years, last
year new management was brought in. The losses from the troubled
segment have been finalized, and the core segments are doing better
again. As a result, the market price has jumped but it is still
nowhere near what it used to be. After the latest announcement on Jan
10th, I believe the risk in the shares came down substantially.
It looks like new management has also found assets it can sell that will
not affect revenues. They are also in the midst of a cost-cutting
program. Finally, a competitor of theirs (Carillion) recently went into liquidation. This gives Interserve a chance to pick up some more contracts, and may bring a more rational mindset to contract pricing going forward, which would be good for the remaining players.
Disclosure: Author has a long position in shares of Interserve