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UPDATE 1-Interserve to keep equipment services unit after review
October 10, 2016 / 8:11 AM / in a year

UPDATE 1-Interserve to keep equipment services unit after review

(Adds analyst comment, details, background, share movement)

By Esha Vaish

Oct 10 (Reuters) - Support services and construction company Interserve Plc has decided to keep its RMD Kwikform business after a strategic review because it brings the firm more international exposure.

Interserve also said RMDK, which contributed 32 percent of group operating profit last year, was a highly cash generative business, underpinned by operating margins of over 20 percent.

The business provides support structures while new buildings are being constructed.

“Whilst some of our end markets face some near term uncertainty, the structural drivers for global infrastructure remain strong,” the company said in a statement.

“RMDK is a global business, providing an important element of diversification to the rest of the group’s predominantly UK-based earnings profile,” it added.

Shares in the company, whose other activities include providing care services and repairing historic buildings, fell 5 percent to 337.25 pence at 0750 GMT.

Numis Securities analyst Howard Seymour said although RMDK was a strong business some investors would be disappointed by the decision to keep it.

A sale could have fetched about 300 million pounds ($373 million), helping Interserve to get rid of its debt, said Seymour, who has a “buy” recommendation on Interserve’s stock.

Interserve had net debt of 275.6 million pounds as of end-June and has forecast net debt of 300 million to 320 million pounds for the year to end December.

Interserve also said it would incur non-recurring charges of about 17 million pounds ($21 million) over the next 12 months to carry out strategic changes at RMDK, which would include restructuring operations in a number of smaller, less attractive markets.

The British company could also face a slowdown in its home market, with major business surveys showing that Britain’s economy appears to be losing steam following the country’s vote in June to leave the European Union.

Peers Mitie and Capita have already warned that customers have been reluctant to sign off on major contracts since the Brexit vote, prompting analysts to warn that Interserve could also be hit. ($1 = 0.8042 pounds) (Reporting by Esha Vaish in Bengaluru; Editing by Sunil Nair)

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