Government outsourcer Carillion's shares crash on third profit warning in a year

carillion
Carillion has been given contracts as part of the HS2 project
  • Struggling outsourcer Carillion issues third profit warning of the year; shares plunge as much as 60pc
  • Carillion said that it will breach its financial covenants; shares were worth around 250p just 11 months ago, today just 20p
  • FTSE 100 nudges down; United Utilities and Mediclinic finish the biggest laggards
  • Dollar slides as probe into Russian interference in the US election deepens; Special Counsel Robert Mueller has issued a subpoena to obtain documents and emails from the campaign, according to a report in the WSJ

                                                                                                    

Markets wrap: Carillion shares crash on turnaround setback; Sky's leap softens FTSE 100's fall

Carillion has been selected by the Government to work on the HS2 project 

HS2 and Ministry of Defence outsourcer Carillion's shares have nosedived on a third profit warning of the year as it suffered another setback in its turnaround with shares crashing as much as 60pc in intraday trade.

Shares in the firm, which has secured a number of Government contracts since its profit warning in July, have plunged from 256p just 11 months ago to as low as 16.5p this morning following the string of profit warnings and management admitted today that it is likely to break debt covenants and will need to do "some form of recapitalisation" in the new year.

Elsewhere, Sky has softened the FTSE 100's modest fall after jumping 4pc on rumours that US peers Verizon and Comcast have approached 21st Century Fox over its stake in the UK broadcaster while United Utilities has dived 4.3pc on an analyst downgrade and Mediclinic has shed 4pc ahead of the deadline to submit its bid for smaller peer Spire Healthcare.

UBS upgrades pessimistic forecast for UK growth

The Swiss finance firm UBS believes the outlook for the UK economy has improved

The Swiss bank UBS has admitted that the outlook for the UK is not as bad as it thought in the immediate aftermath of the European Union referendum and that the economy is well-positioned to benefit from strong global growth. 

While uncertainty about the final outcome of Brexit might weigh on economic progress, the bank did not believe it would derail future economic expansion.

UBS forecast that the UK will grow 0.7pc in 2018 has been upgraded to 1.1pc and the bank believes this rate of acceleration will be sustained into 2019. This is still a fairly negative view compared to other economists. The consensus view is that the economy will grow by 1.4pc next year. The Bank of England thinks it will be 1.6pc.

Dean Turner, an economist at the wealth management arm of the bank, told The Daily Telegraph that this shift was based on a prediction that wages will pick up in the new year, even if business investment remains sluggish as firms await greater clarity on the likely outcome of Brexit talks.

Read Anna Isaac's full report here

Carillion plunge on par with July nosedive

Carillion shares went off a cliff edge in July

As we approach the end of trading, Carillion's shares have clawed back some of the 60pc lost in early trading but are still sitting at a 38pc loss for the day.

Interestingly, that fall would be about on par with the first day of its huge fall in July. It shed 39pc on the day of its profit warning and then plunged a further 33pc and 27pc in the following days. Could it slip further on Monday as analysts deliver their damning verdicts?

ETX Capital analyst Neil Wilson believes the firm is too big to fail.

He explained:

"Some investors might think this is the end, but Carillion is too big to fail. Government intervention is possible but this is a nightmare for ministers at such a sensitive moment for the economy.

"Disposals haven’t gone as quick as forecast, a big Middle East contract is delayed and margin improvements in UK services contracts have been less than expected. All of which is hardly a major surprise to those watching the meltdown from the side lines."

Speaking of Carillion and the Middle East, what ever happened to that bidder from the region supposedly ready to snap up the outsourcer on the cheap?

The "final touches" were supposedly being made to the deal three months ago now. If there ever was an interested party, the latest plunge surely makes a bid even more enticing,

Deliveroo begins targeting pubs without grub in bid to benefit from drink-led venues

Deliveroo has started delivering food to customers at pubs which don't have their own kitchens

Delivery company Deliveroo has started working with pubs and bars which don’t serve their own food meaning customers no longer need to go elsewhere for a meal.

The online giant has grown by working with restaurants and pubs which already serve their own food but don’t have a way of servicing the potentially lucrative takeaway market.

But now it said it has started working with pubs and bars which don’t have kitchens, allowing customers to order Deliveroo to the pub they are in.

One of the first venues to take up the service was live music venue The Shed, which has just recently opened its doors to Deliveroo drivers as it doesn’t have a kitchen of its own.

The Shed underwent a renovation this year to enable it to welcome trade in the day rather than just at night but the site doesn’t have its own kitchen. Because of this, owner Elisabeth Barker-Carley said when the opportunity came to work with Deliveroo she wanted to take it.

Read Bradley Gerrard's full report here

Carillion shares plunge music to the ears of hedge funds

Some 17.4pc of Carillion's shares are out on loan to short-sellers

The latest slide in Carillion's shares will be music to the ears of the hedge funds who have shorted the firm for months and sometime even years.

Collectively short-sellers made just under a staggering £80bn from the plunge in July and my very rough calculations have worked out that those that held their nerve and didn't close their positions will pocket an extra £10.5m between them. Not a bad day's work.

Era of ultra-low inflation could draw to close as globe recovers, says Draghi 

Global growth could start to push up wages and prices, Mario Draghi said

Global economic growth could stoke a rise in inflation across the world, ending the era of flat prices - and ultra-low interest rates, Mario Draghi has indicated.

The head of the European Central Bank said low rates are still needed to support the economy for now as inflation remains subdued, but this may not last for much longer.

Inflation has stayed stubbornly low despite rock-bottom rates since the financial crisis in part because globalisation has introduced more cheap goods and low-cost labour to developed economies.

But that era could be coming to a close as widespread steady economic growth uses up spare capacity around the world and forces prices up.

Read Tim Wallace's full report here

Oil prices snap five-day losing streak

Oil prices have snapped a five-day losing streak and are rallying back towards the two-year highs they hit last week.

Brent crude has broken back through the $62 per barrel mark on a softer dollar and Saudi Arabia's oil minister saying that OPEC members should back a production cut extension at the cartel's meeting at the end of the month.

Staying in the sector, yesterday's announcement by Norway's sovereign wealth fund that it will begin divesting its stakes in top oil companies including BP and Shell is not dragging down the two oil giants' shares for a second day with both firms clawing back some of their losses.

Carillion warns on profits and says it will breach banking covenant  

The support services firm said it expects to breach a banking covenant on December 31

Troubled support services firm Carillion has warned its full-year profits will be lower than previously expected and that it is set to breach a covenant imposed by its lenders.

The company, which lost 70pc of its value after an £845m writedown in July, said lower than expected margin improvements and the delaying of asset sales and a project in the middle east would drag profits "marginally lower than previous expectations". 

Carillion said: “Given the impact of delays in receipts and disposals, the group now expects full year average net borrowing in 2017 to be between £875m and £925m."

As a result it expects to breach banking covenants on December 31, and said it is now necessary to defer the covenant test date to April 30.

Read the full report by Jack Torrance here

Scramble for survival at Carillion

Ouch! Broker Stifel says it is going to stop analyst coverage of profit warning-hit Carillion as it can't produce forecasts beyond the current year with any confidence.

The outsourcer did seem to be making the right noises regarding its turnaround in the last couple of months after securing new credit facilities and disposing some of its assets. It's a scramble for survival now, according to CMC Markets analyst David Madden.

He said:

"Things have gone from bad to worse at Carillion, and the business is in dire need to cash to keep the lights on. Even though the business has plenty of work in the pipeline, it must scramble for cash in order to keep its head above water."   

Lunchtime update: Government outsourcer Carillion suffers turnaround setback

Troubled outsourcer Carillion has secured contracts on the HS2 project

Troubled outsourcer Carillion has suffered another setback in its turnaround after issuing a third profit warning of the year and telling shareholders that it is likely to break debt covenants, sending its shares crashing as much as 60pc in intraday trade.

Shares in the firm, which has secured a number of Government contracts since its profit warning in July, have crashed from 256p just 11 months ago to as low as 16.5p this morning following the string of profit warnings and management admitted that it would need to do "some form of recapitalisation" in the new year.

On the climbing FTSE 100, Sky has jumped 3pc on rumours that US peers Verizon and Comcast have approached 21st Century Fox over its stake in the UK broadcaster while blue-chip oil giants BP and Royal Dutch Shell have rebounded as oil prices begin to nudge back towards recent highs.

Sky leaps to the top of the FTSE 100 on 21st Century Fox stake report

Just Eat's expansion will hit margins, Deutsche Bank said

It's a very slow morning on the economics front so let's have a look at what other than Carillion is moving in London today.

Sky is enjoying its best day of trading since June on reports from the US that giants Comcast and Verizon are interested in snapping up 21st Century Fox's stake in the Rupert Murdoch-led broadcaster.

Its 3.1pc rise takes it to the top of the FTSE 100 while at the other end, United Utilities has slipped 4.5pc on a broker downgrade from HSBC and Mediclinic's slide is continuing as we approach the Monday deadline for to confirm a bid for Spire Healthcare.

On the FTSE 250, Just Eat has dived just under 4pc after Deutsche Bank told clients that its expansion will hit margins while oilfield services firm Petrofac has jumped 3pc on our story that US giants Schlumberger and Halliburton are circling the scandal-hit company.

Carillion recapitalisation plan was 'inevitable'

Should questions now be asked as to why the Government handed Carillion those MoD and HS2 contracts just days after the profit warning in July?

It looked odd at the time and looks even odder now.

A recapitalisation plan was "inevitable" but a debt for equity swap deal " is probably as bad as anyone would have guessed", according to Hargreaves Lansdown analyst Nicholas Hyett.

He added:

"The group has made some progress on asset sales, and it sounds like some cost savings are being made.

"It’s not what the group expected though, and it’s clearly not enough. It’s also probably irrelevant given the state of the balance sheet, with net debt already many multiples of the group’s market capitalisation."

Former Trump campaign adviser describes dollar-damaging documents as 'irrelevant'

Former Trump campaign adviser Carter Page has called handing the documents over as 'unnecessary'

Sterling is going from strength to strength on currency markets and is now at a four-week high against the sliding dollar.

The greenback is on the back foot after Special Counsel Robert Mueller issued a subpoena to obtain more documents from the Trump campaign as part of the probe into Russian election interference.

Mr Trump's former campaign adviser Carter Page told Reuters that the documents were "irrelevant and unnecessary" and said in a testimony that he believed the committee has received most of the documents from others already.

The defence hasn't been enough to convince forex traders but the dollar's losses are starting to ease.

Spreadex analyst Connor Campbell pointed out that a number of factors could have weighed the pound down today:

"With no data to speak of the pound felt comfortable in continuing yesterday’s rebound.

"Despite more negative noise from the EU surrounding Brexit – with the Netherlands preparing for a no deal ‘chaos’ scenario, and leaked documents suggesting May’s aim of a ‘deep and special’ relationship won’t be possible – sterling got off to a decent start this Friday." 

UK wasting money as cutting edge firms hoover up tax breaks meant to help laggards

Highly productive sectors such as pharmaceuticals are often the biggest beneficiaries of measures to boost research and investment

Philip Hammond should scrap tax breaks for research and development because they are swallowed up by high-tech companies which would invest regardless, economists have claimed – and instead spend the money directly on projects which need the help.

As much as 80pc of R&D tax credits are spent on projects which would happen anyway, the Institute for Public Policy Research (IPPR) estimates.

This means almost £2bn of spending is wasted on the credits each year, and could be put to better use elsewhere.

“The Government is in danger of missing the point in its industrial strategy. Its focus so far has been on sectors engaged in technological innovation, like automotive and pharmaceuticals. But productivity in these sectors is already high,” said the IPPR’s Michael Jacobs.

“The UK’s productivity problem lies in the vast majority of ordinary firms, in sectors such as retail, light manufacturing, tourism, hospitality and social care.”

Read Tim Wallace's full report here

Carry on Carillion

Carillion shares plunged as low as 60pc this morning

It would be churlish to pretend that this is a problem exclusive to Carillion in the sector.

Every outsourcer I can think of off the top of my head has issued a profit warning in the last couple of years (Mitie, G4S, Capita, Serco) and the problem always seems to be the same: overstretching themselves with contracts on margins thinner than tracing paper.

They are just a bit rubbish.

Accendo Markets head of research Mike Van Dulken has aptly titled his note on the firm this morning "Carry on Carillion".

Here's his two cents on the share price reaction this morning:

"The share price reaction today suggests acceptance of what we foresaw as an inevitable and highly dilutive rights issue to “encourage” shareholders into participation, to keep the restructuring ball in the air.

"Shorts who stayed the course (most shorted stock on FCA disclosure data), even adding, will be smiling all the way to the bank, having expected already serious corporate and financial troubles to worsen."

Carillion shares crash... again

It's time to sound the crashing Carillion shares klaxon. 

The beleaguered outsourcer has issued its third profit warning of the year and warned that it expects to breach its financial covenants, adding that it is looking into "some form of recapitalisation".

Shares stooped as low as 16.5p this morning after nosediving 60pc. Carillion's shares were comfortably around the 250p mark around 11 months ago, an incredible fall. It will be a penny stock before long.

Agenda: Dollar on the slide as probe into Russian interference in US election deepens

Special Counsel Robert Mueller issued the subpoena

The dollar is on the slide this morning following reports that a subpoena has been issued to obtain documents and emails from the Donald Trump campaign as part of the probe into Russian interference in the US election.

The subpoena is believed to have been issued last month by Special Counsel Robert Mueller and the deepening investigation has helped the pound rally against the greenback on currency markets this morning, climbing 0.3pc to $1.3235, a three-week high.

No key economic indicators are due in the UK today with second estimates for third quarter GDP and public sector net borrowing booked in the diary next week. US housing data and eurozone construction figures are the sole points of interest on the agenda for traders.

The mood on stock markets has been brightened by the House of Representatives passing corporate tax cut reforms in the US but the FTSE 100 is struggling to gain traction, nudging down into the red early on.

It must feel like Groundhog Day at battered construction outsourcer Carillion. It has issued a third profit warning of the year this morning and said that it will break its debt covenants, slashing its share price in half.

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