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Interserve - £35m contract: whoopiedoo, but it is insignificant

By Nigel Somerville | Thursday 12 July 2018

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

When I first commented last October 15th on fully listed Interserve (IRV), it was sacking its old board and in a financial mess, and the shares were around £1. I said sell – and glory be, the shares sit this morning at about 60p after an RNS telling us of a new £35 million contract. The RNS strikes me as getting any good news out it can.

The RNS tells us that the £35 million deal is over five years – so it is worth just £7 million a year. Yet the same RNS tells us that the company has gross revenues of £3.3 billion. So this contract is worth 0.2% of the company’s annual revenue. Perhaps that is why this morning’s RNS is classed as an “RNS Reach” – in other words it is marketing material. It might also explain why this news has seen the shares fall by 2.4% (last seen), whilst the market generally is up.

To be fair to the new management team, led by Deborah White, they have stabilised what looked at one point to be a potential zero. They’ve restructured the debt (whilst giving away a load of stock at 10p nominal), got the banks onside and there looks to be a reasonable chance of recovery. But things look set to be tight for some time as a schedule of borrowing repayments eats up any cashflow generated. In short, then, there is still plenty which could go wrong.

Meanwhile, Deborah White managed to get her pay packet through the AGM recently: well done her: that’ll be £525,900 during her first four months (including a 125% bonus) and £680,000 (before bonus) for this year. New FD Mark Whiteling trousered £246,430 in his first three months (including bonus) and is set to pocket £405,000 for 2018 (before bonus). They seem quite a substantial pay packets, but if they turn the ship around then perhaps it won’t seem so much.

What is more of a surprise is that the former CEO, Adrian Ringrose, trousered £459,173 in the year to last August. As part of a team which clearly had abjectly failed, had left the company in such a state that it went on to breach banking covenants and needed bailout financing and now is under investigation by the FCA over the handling of its exit from the energy-from-waste business between July 2016 and January 2017. You certainly do have to pay a high price for talent. I trust that Deborah White will prove rather more worth her stack of cash.

I had been inclined to go neutral on the shares and see how things panned out. But this morning’s non-news seems such a non-event it leaves me wondering whether the company is simply trying to shore up its declining share price ahead of a placing. So I still say sell.

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