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WILL FM PROSPER FROM FISCAL REJIG?

Graham Davies
Graeme Davies writes for Investors Chronicle

03 February 2020 | Graeme Davies


Graeme Davies looks at how the new government will effect the FM sector.


The New Year dawned with some political clarity as Boris Johnson’s Conservative Party basked in the pleasure of securing its biggest House of Commons majority since the 1980s, a mandate that will allow Johnson to pursue an accelerated Brexit and stamp his mark on the economy for years to come. 


But what shape will so-called ‘Borisnomics’ take, and what effect will it have on the UK’s FM sector and the companies in a sector which has been in flux for much of the past five years? The problem we have with identifying what the new Conservative majority means for the economy is that our recent political past has been so dominated by Brexit that other priorities have either struggled for airtime or been put on the back burner.


What else can we expect from the government? Indications from last year’s spending review are that this government is ready to loosen the fiscal straitjacket put on the UK since the start of the last decade. According to analysts at Deutsche Bank, chancellor Sajid Javid’s rejigging of fiscal rules could result in an extra £150 billion of government spending over the next four years, of which less than half has so far been committed. Much of the balance is expected to be spent on ‘investment’, translated as spending on renewing infrastructure such as hospitals and transport and also on the regions, given the Conservative Party’s need to keep newly won voters in the former industrial heartlands onside. 


This could translate into contract opportunities for FM work once new infrastructure is in place. But are UK FM operators match fit to grab any new opportunities coming their way?


It would be fair to say the sector is somewhat battered and bruised with few players having avoided trouble in recent years. Coming into this year, big worries remain for operators such as Kier, where debts are a concern, and others such as Mitie are still recovering from their own challenges. Serco’s recovery is further down the road and investors have backed management of late with its shares up 45 per cent in the past year. Such as been the strength of Serco’s recovery that it has even been mooted as a consolidator in the sector, with Babcock International a potential target last year, although whether it is strong enough yet for such a chunky deal is questionable.


What’s certain is that opportunities for growth in the UK market are more likely now than at any point in the past decade. But competition from overseas is also likely to grow, especially if the government strikes trade deals outside of Europe that open up the market further. Consolidation could in fact become necessary for some domestic players to survive and thrive. 


Graeme Davies [email protected]