October 23, 2017 / 7:18 AM / a month ago

UPDATE 1-Britain's Interserve wins 140 mln stg BBC contract extension

(Adds background, analyst comment, shares)

Oct 23 (Reuters) - Interserve, which has issued multiple profit warnings this year, has won a 140 million pound ($185 million) extension to a facilities contract from broadcaster the BBC, the British construction and services company said on Monday.

Under the four-year extension, which was first awarded in 2014, Interserve will provide the BBC with facilities management services, the company said in a statement.

The win comes less than a week after the group warned on profits citing a further deterioration in trading in its British construction and support services businesses in the third quarter.

Interserve has struggled with cost overruns in its energy from waste business, which it decided to exit in August 2016 after delays to a Glasgow contract caused it to book a provision.

Many companies trying to generate energy from waste have been forced to make expensive design changes, escalating costs, and Interserve has since had to raise the provision to wind up loss-making contracts.

In other areas of construction and support services, groups such as Mitie, Capita and Carillion have also been hit over the past year by rising labour expenses and as unplanned changes have pushed up costs.

A failure by some clients to renew or commission new contracts as they grapple with Brexit uncertainty has compounded the problem, prompting warnings from Interserve and its peers.

Interserve said last week it was in talks with banks after a report said its lenders, including HSBC and Royal Bank of Scotland, had hired accountants EY as their adviser.

The group has since won a five-year facilities management contract worth 227 million pounds from the Department for Work and Pensions.

Interserve said on Monday that under the BBC contract extension it would provide services ranging from broadcast engineering and utilities management to clearing and security across several locations.

Liberum analyst Tom Musson, who has a “buy” rating and target price of 150 pence on Interserve stock, said the contract win was positive for the company.

“We believe that like Serco and Mitie, thoughts will quickly turn to the recovery potential in the business,” Musson wrote in a client note, adding that the stock was “cheap enough”.

The group’s shares, which have lost more than three-quarters of their value so far this year, were up 1.6 percent at 77.75p in early trading.

It already provides security and building contractor services for the BBC.

$1 = 0.7567 pounds Reporting by Esha Vaish in Bengaluru; Editing by Jason Neely and David Holmes

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