Severfield-Rowen: Less Favorable Dividend Backdrop
Edison | Jan 25, 2013 02:27AM ET
A material cost overrun on a large central London contract has been flagged (but not quantified) and, after other project issues in 2012, a change of CEO has been made. In view of a probable H2 loss, Severfield is in discussion with lenders, though net debt is within facility headroom. We believe the dividend backdrop is less favourable now and withdraw our estimates until further guidance on project and banking positions are available.
Severfield’s third warning, citing project cost overruns has resulted in the departure of CEO, Tom Haughey. Chairman, John Dodds (formerly CEO at Kier Group) has stepped up to an executive role pending the appointment of a successor.
The IMS refers specifically to adverse performance at122 Leadenhall (the Cheesegrater – a British Land/Oxford Properties development). There is also to be a full review of the current contract base. No financials are given so we are withdrawing estimates pending greater clarity. In our November update note, we were projecting a break-even H2 (after a small H1 profit); we now anticipate exceptional-type costs in FY12 results. Standard banking covenants are likely to be triggered and there are active discussions with lenders - though the company has always steadfastly refused to divulge specific terms on its £50m RCF (vs £30m year-end debt) to 2016. As a market leader with an order book still above £200m, we anticipate supportive discussions with the banks alongside the contract review process. The next dividend decision is now more opaque and the backdrop less favourable.
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