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17 November 2019
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FM SECTOR STEADIES AFTER WOBBLES

Graham Davies
Graeme Davies writes for Investors Chronicle

02 September 2019 | Graeme Davies


Graeme Davies reports on the financial results of FM companies. 


The results season, when hundreds of UK companies publish either half-year or full-year figures to the end of June, is always a good time to reflect on the health of UK plc. And watchers of the FM segment of the support services sector have had the opportunity to see how the names who have been through the mill are now shaping up. 

It is difficult to find a quoted company with FM exposure that has not had a wobble or two in recent times. But three companies that have sailed closer to the wind than most have recently issued results that showed varying degrees of recovery in performance. This is partly reflective of the stage at which Serco, Capita and Kier are in their recovery processes.

Serco, which was plunged into crisis mode several years ago, finally appears to be on an even keel, as its latest figures show organically derived revenues growing for the first time since 2013. Under the stewardship of Rupert Soames, Serco has steadily rebuilt its business by hiving off unwanted operations and making judicious moves into overseas markets.

Capita’s woes are fresher in the memory and it is still in the retrenchment and debt reduction phase of its recovery plan. This is going well with £1.1 billion fundraising last year slashing debt, although it remains chunky at £600 million-plus. But revenues and the order book are still shrinking year on year as management rationalises its operations in a bid to return to growth. There was positive news for shareholders recently of some big contract wins, which suggests that the tanker is slowly turning.

Investors abandoned Kier in droves late last year when its debt problems became clear. Management has made some progress on this front with net debt at its recent trading update coming in below the market’s expectations at £167 million. But this partly reflects the company withdrawing from some activities – as illustrated by news that revenues this year are likely to be £100 million lower than 2018, which also reflects a moribund property market. The sale of Kier Living is expected to contribute to further reductions in debt soon.

The share price performance of all three companies over the past year also reflects their differing stages of recovery. Serco’s shares are up 44 per cent over the past year, while Capita’s have been much more mixed and are up just 11 per cent over the year. Kier’s shares leapt by 30 per cent following its news, but this is from a low base, as its shares have slumped more than 90 per cent over the year. That Kier remains one of the most shorted stocks on the London market, with more than 10 per cent of its shares held by investors betting they will fall further, suggests that it’s still a long way from recovery. 


Graeme Davies writes for Investors Chronicle