IRV - Half Year results to 30 June 2014

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Interserve (IRV) - which describes itself as follows: "one of the world's foremost support services and construction companies. Our vision is to redefine the future for people and places. Everything we do is shaped by our core values.  We are a successful, growing, international business: a leader in innovative and sustainable outcomes for our clients and a great place to work for our people. We offer advice, design, construction, equipment, facilities management and frontline public services. We are headquartered in the UK and listed in the FTSE 250 index. We have gross revenues of £3.1 billion and a workforce of over 75,000 people worldwide." It has a market capitalisation of around £900 million.

I suggested as an interesting stock back in February when it was trading below 600 pence and they have today announced their interim results and very good they look too. However, it is worth remembering that the headline numbers have been boosted by acquisitions and in particular the acquisition of Initial from Rentokil which completed in March this year. As a result of this and strong underlying trading the headline numbers from the announcement were as follows:
 

• Revenues up 28.7% which included 9.1% organic growth
• Operating Profits up 35.9% with 15.4% organic growth.
• Earning Per Share of 27.5 pence were up 28.5% with 14.5% growth pre acquisition effects.
• Dividend raised 10.3% to 7.5 pence which compares to full year growth forecasts of around 7%.
• Future workload up to £7.5 billion from £6.4 billion last year after £2 billion of contract wins in the period this is equivalent to about 3 years turnover - so some quite good visibility.

Elsewhere in the statement they confirmed that they had secured some long term finance via a US placement of debt and that they had reduced volatility on just over a third of their Pension fund via a £300 million buy in that has just completed.
They also confirmed, as suggested by these figures, that the integration and performance of their recent acquisitions was going to well and to plan.

Chief Executive Adrian Ringrose commented:

"It has been a very good first half of the year for Interserve. We have delivered strong organic growth, achieved through robust performances from our UK Support Services and Construction businesses and excellent results in Equipment Services.

"Market conditions in International Construction and Support Services continue to be highly competitive, although we are now starting to see signs of improving demand.

"Our strong organic growth was complemented by the performance of our acquisitions. Initial Facilities traded in line with our expectations during the period and its integration is progressing smoothly.

"Our financial position remains strong which, together with our growing future workload, underpins the Board's confidence in our positive outlook and the increase in the interim dividend to 7.5 pence."

On the outlook the Chairman Lord Blackwell said in his statement:

"Trading conditions in our main markets continue to improve, albeit in some cases from a low ebb.  Having taken early action to weather the downturn at the start of the recession, the Group is now positioning itself to take advantage of sustained market improvement by investing in skills, infrastructure and fixed assets.  We are well-positioned in our main markets with a healthy spread of geography, segments and service lines. We remain confident in our near-term prospects and optimistic regarding our medium term future."


Summary & Conclusion
The shares did well initially after I first wrote them up in February, primarily on the back of the Initial acquisition and related placing. This saw the shares rise to a peak of 745 pence on 1 April 2014. However, since then in common with other mid and small cap stocks they have been marked down by Mr Market closer to 600 pence again, closing yesterday at 613 pence. This left them on around 11x this years foredast earnings of almost 55 pence, pre any changes today. They say they reiterate full year guidance in the statement so we may not see any upgrades at this stage. However, I note last year they earned slightly more in h2 than h1 so if that is repeated this year then they should beat the current consensus.

Meanwhile the yield is expected to be 3.75% based off of the 23 pence forecast dividend. However given the increase in the interim today I would expect them to probably pay around 24 pence this year if a similar increase in the final is made which would give a yield of 3.9%. So if you missed it first time around it looks like you are being offered another opportunity to acquire this one around the 600 pence level which seems like a good idea to me, although I am probably biased as I continue to hold this one, but if you want to do your own research check out www.interserve.com or @interservenews.

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