It's a bit quieter on the news front today although we have had a Q3 trading update from Interserve (IRV). The shares have been quite weak and trending gently downwards since they peaked at over 750p 18 months ago. So with the shares down to 535p at the time of writing they might be offering an interesting trading opportunity down here.
The trading update was of the in line variety despite some losses on some construction projects. The support service side, strength in the equipment hire and middle eastern construction helped to offset this. This one got hit back in the summer when they highlighted the likely cost of the new living wage. However I note in the event that estimates were not downgraded, but have actually increased modestly from 62.9p to 63.8p since then, which is a pleasant surprise. So with no changes likely on the back of this update it trades on 8.4x and has a yield of 4.5% based on this years forecast dividend of 24.4p which is expected to be up by around 6% on last year.
So it looks pretty cheap, but then it is low 2 to 3% margin business with a sub 10% ROCE so not the typical high quality business that I try to target. In addition the balance sheet carries some debt which they said today they expect to come in between £270-£300m which compares to the market cap of £774m. So it is quite geared, but the interest cover at over 5x and the Piotroski is a healthy looking 7 suggesting the finances are OK and improving, although ans Altman Z Score of 1.74 suggests a note of caution. However, there's a price for everything and this one seem OK and a bit on the cheap side to me, while the Compound Income Scores rate it at 81 but I note that the price momentum is poor and they are looking oversold. A 10x rating could target a price of 638p which would leave it on a still reasonable 3.8% yield which would be 2.6x covered by the expected earnings.
Looking at the chart above it seems as though 500p could be a good support level so that might be a good level for a stop loss to limit losses if you did decide to trade it. On the upside on the shorter term daily chart (below) I note a gap around 620p which often get closed eventually and as this one has been bobbing up and down that doesn't seem impossible and is supported I would say by the fundamentals discussed above. If it were to do that then this could provide a 15% or so capital return plus potentially a 3% yield from the final alone which usually goes XD in April before being paid in May if you should end up buying it and holding it that long.