Curates Egg Updates today....

....from Interserve (IRV) & Utilitywise (UTW). I say curates egg because on the face of it both of them seemed OK but there were parts of their statements which were not so good.

In the case of Interserve the FTSE 250 construction and support service company they reported good looking numbers with revenues, profits and headline earnings all up by double digit percentages against 7% or so growth expected for the full year. There was also a good increase in their future workload. Meanwhile the dividend was up by 5% which is just shy of their historic growth rate and the 7% growth forecast for the full year, although they could make this up in the second half with the final.

However, the bad part of the statement came when they highlighted their initial estimate of the impact of the new National Minimum Wage announced in the recent Budget at £10 - 15m from April 2016. This looks like it could be around 10% of their likely profits forecast for 2016 and thus I would expect to see downgrades coming though on the back of this. I also note that the debt also increased to nearly £300m as they spent more on capital expenditure (£28.9m v £24.9m) with continuing investment in the Equipment Services fleet, particularly in the Middle East. There was also an increase in working capital. This takes the debt to about a third of the market cap. and while not excessive it needs watching as the balance sheet is not as strong as it was before the Initial acquisition, although some gearing can also be beneficial for shareholders.

Given the possible downgrades today, the more geared balance sheet and the relatively low margins this one makes means it is not one of my more typical stocks. As the CIS has come down to 58 and the outlook for next year is clouded by the new Minimum Wage then I would say it is just a hold here for now, although it should still be OK as it does trade on just 10x this years expected earnings with a yield of around 4%. But the growth next year may now be constrained, so as ever you pay your money and take your choice.

Meanwhile Utilitywise had a mixed trading update in which they started off by saying that revenues were ahead of expectations but then went onto say later in the statement that EBITDA would be behind expectations. This was due, as I feared earlier in the year, that their "investment" in recruiting lots of new sales staff did not pay off sufficiently quickly. However, I guess as the new staff get up to speed they may become more productive and allow them to meet their forecasts going forward.

The shares have slumped below 200p again on the back of this, which in the past has been a good support level and an area from which they have bounced quite often. This one does tend to be volatile and I did manage to trade it successfully earlier this year selling out at just over 250p. It is also still held in the Mechanical  CIS portfolio as it currently scores 97 on the CIS but it will be interesting to see how the Score moves on the back of the likely downgrades today. Thus I guess in the short term I can put that down as a victory for me against the machine. I guess time will tell who has the last laugh but in the meantime I might look at it again for a trade down here.